Alistair Darling sought to placate hostile trade unionists yesterday by delivering his strongest attack yet on City bonuses, saying that they contributed to the global credit crunch.

The Chancellor was jeered at the Trades Union Congress in Brighton as he faced down union leaders demanding higher public sector pay, an issue that has dominated the conference.

Mr Darling said that increasing pay now would push up inflation “very quickly” but he drew shouts of disbelief when he claimed that public sector salaries had risen faster than pay in the private sector.

He attempted to offer a crumb of comfort by hinting that he believed economic recovery may come next year, telling his audience that oil prices were already falling and that most forecasters expected inflation to come down in 2009. This was notably more optimistic than an interview two weeks ago in which he said that the economic downturn would be “profound and long-lasting”.

The Chancellor also came out with a scathing denunciation of the culture of City bonuses, an apparent attempt to mollify the conference hall after he ruled out an energy windfall tax. “You are rightly concerned about excessive bonuses, especially when people seem to get money for failing, not succeeding,” he said. “And that's got to change. A bonus should be for hard work, not big mistakes.

“Excessive bonuses, which encourage traders to take excessive risks, at a time of easy global credit [are] one of the major reasons for the global credit crunch.”

Business leaders rejected his analysis and said that Mr Darling was playing to his audience. John Cridland, the deputy director of the CBI, said: “You would anticipate the Chancellor in Brighton playing to the gallery. Clearly there is an issue about appropriate incentivisation. But that's a different thing to saying there's a fundamental structural problem with [City bonuses].”

The passage did not stop the speech being denounced by several union leaders. Paul Kenny, general secretary of the GMB, said that Mr Darling “was about as warm as a toaster which has been turned off for a couple of hours”, although he welcomed the Chancellor's criticism of City bonuses.

Keith Sonnet, deputy general secretary of Unison, said: “I wasn't at all impressed. He didn't even give us a crumb of comfort. It was a very bleak and sombre picture that he painted for us and there wasn't a package of measures to deal with it.”

Earlier in the day delegates attacked the Government over the state of the economy and called for a fairer tax system and more action to regulate private equity firms and financial institutions. Unions backed a motion saying that the wealth gap in society had extended under Labour.

Some ministers have been attempting to put relations with the trade unions on a better footing. John Denham, the Innovation, Universities and Skills Secretary, offered an olive branch when he used his speech to increase the minimum apprenticeship pay from £80 to £95 a week next year.

Harriet Harman, the Labour deputy leader, will announce today a national equality panel to examine the roots of inequality. It will report at the end of 2009. The panel, chaired by Professor John Hills, will hold public hearings. This did little to convince union leaders, who still predicted a Tory victory at the next election.

Mark Serwotka, general secretary of PCS, said: “The Tories are bound to win the next election if the Government keeps to its current course and there was no sign of a change of strategy from Alistair Darling.”

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