Alistair Darling today refused to rule out a pay freeze for Britain's six million public sector workers after the head of the government's spending watchdog accused party leaders of failing to be honest with people.

Steve Bundred, the chief executive of the Audit Commission, wrote in the Observer that he had not heard any politician admit that "severe pay restraint" was necessary to rebalance public finances.

The chancellor insisted public sector pay must be "fair" to workers but, with inflation at its lowest level in years, appeared to open up the possibility of a freeze.