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Unions say plans for a 1% pay cap for public sector workers announced by George Osborne are an "insult".

Mr Osborne said a two-year cap would come into force from 2012, once the current two-year pay freeze had ended.

On the eve of widespread strikes over planned changes to public sector pensions, unions accused the chancellor of aiming "another punch" at workers.

TUC chief Brendan Barber said workers were being asked to accept a "permanent deep cut" in living standards.

The chancellor announced the news in his Autumn Statement on Tuesday, alongside forecasts that UK economic growth would be lower than expected - and the government would have to borrow £111bn more than predicted over five years.

'Tough but fair'

The current two-year pay freeze for public sector workers is due to come to an end for most from 2013, although for some it will be 2012.

Mr Osborne told MPs that Britain "cannot afford the 2% rise assumed by some government departments thereafter".

Instead, he said, public sector pay awards would be set at an average of 1% for the two years after the pay freeze ends - saving £1bn by 2014-15.

The chancellor said that many public sector workers would get annual increases in salary grades anyway and that public sector pay had risen at twice the rate of private sector pay over the past four years.

"While I accept that a 1% average rise is tough, it is also fair to those who work to pay the taxes that will fund it," he told MPs.

With inflation running at more than 5%, the rise is an effective pay cut.

'Class war'

The independent Office for Budget Responsibility has also revised up its forecasts for the number of public sector jobs predicted to go by 2017 from 400,000 to 710,000, as a result of extra spending cuts planned after 2015.

It comes as public sector unions gear up for Wednesday's one-day mass strike over public sector pensions. Up to two million workers are expected to take part, closing hundreds of schools and disrupting airports and hospitals.

Union leaders said public sector workers were being asked to pay for a recession which they had not caused.

The civil service union Prospect said the government was adding "insult to injury" by imposing the 1% pay cap following the wage freeze.

Local pay rates

Prospect's general secretary Paul Noon said: "Once again, public servants are being forced to bear the brunt of this recession, even though they are not to blame.

"Our members are dismayed that on the day before they hit the streets over pensions, the chancellor is aiming yet another punch at them."

Bob Crow, leader of the Rail, Maritime and Transport union, said: "George Osborne has ratcheted up the class war and has made it clear through his attack on pay and employment rights that he wants the workers to keep taking the hit while the rich get richer."

Dave Prentis, general secretary of Unison, said the government needed to get Britain spending - but was making the situation worse with a hike on public sector pension contributions, holding down public sector pay and "throwing hundreds of thousands of public service workers onto the dole".

He said those who were less able to pay were being made to "plug the deficit": "Meanwhile it is still billions in bonuses for bankers. This is only storing up trouble for the future."

And TUC chief Mr Barber said workers were being asked to accept permanent cuts in living standards of up to 16% by 2015 - when pay and pension contributions were taken into account.

'Balanced economy'

Plans for regionally-based public sector pay rates are also likely to anger the unions.

The chancellor has asked the independent pay review bodies to see if pay can be "more responsive to local labour markets".

They will report to him by next July.

"This is a significant step towards creating a more balanced economy in the regions of our country that does not squeeze out the private sector," Mr Osbrorne said.

The government cites research by the Institute of Fiscal Studies, which shows that public sector staff are paid 10% more than their private counterparts in some parts of the country.

Treasury aides said it was not about reducing the pay bill - but the Welsh government says it is concerned that it is "potentially a way to cut the pay of over 300,000 hard-pressed public sector workers in Wales by the back door".