According to The Sunday Times, at last Tuesday’s meeting the Chancellor refused to lift the controversial 1% cap on wages for public sector workers because they receive bigger pensions.
“Public sector workers are overpaid when you take into account pensions,” he is reported to have said, before saying train drivers were “ludicrously overpaid”.
His comments have emerged after senior Tories called for a rethink on the public sector pay cap, claiming it badly damaged the Conservatives in last month’s general election.
Unions claim more than five million public sector workers have seen their incomes fall in real terms over the last seven years.
A Treasury spokesman told Sky News: “We have chosen to restrain pay to keep more public-sector jobs.”
He added: “The Chancellor was describing to cabinet the 10% public sector pay premium. He didn’t say public sector workers were overpaid.”
But The Sunday Times quotes a “Cabinet source” saying: “Philip used a fairly inflammatory phrase. He said they were overpaid.
“That caused some general astonishment. His overall tone was that we shouldn’t give them more cash because they are overpaid. Later in the meeting both Boris Johnson and the PM said we should not say public sector workers are overpaid.”
The row is likely to – and is no doubt intended to – damage Mr Hammond’s chances of becoming Prime Minister if Theresa May stands down later this year.
Such a potentially explosive claim from inside the Cabinet room suggests ministers plotting ahead of a leadership are now in a state of permanent civil war and that discipline has broken down.
The Sunday Times report came after it was reported 24 hours earlier by The Sun that the Chancellor also made sexist comments about women train drivers at the same Cabinet meeting on Tuesday.
Ministers will come under fresh pressure to lift the pay cap this week when the TUC stages a protest in Westminster.
The TUC calculates the real-terms wages of prison officers, paramedics and NHS dieticians are all down more than £3,800 a year compared with seven years ago. Firefighters are down nearly £2,900 and teachers £2,500.
Whether or not he used the words “ludicrously overpaid”, Mr Hammond was no doubt reflecting, however, that train drivers on Southern Rail have voted to strike over pay despite being offered a 23.8% rise over four years to £60,683 for a four-day week.