ALISTAIR Darling has hinted at a public sector pay freeze to tackle Britain&rsquo;s budget black hole.<br /><br />In response to Audit Commission chief executive Steve Bundred&rsquo;s call for &pound;5bn savings in wages, the chancellor said: &ldquo;Public sector pay obviously has got to reflect prevailing conditions, and in particular inflation has come way down.&rdquo;<br /><br />He said the pay policy, due to be decided over the next few weeks, &ldquo;has got to be fair to people who work for the public sector just as we have to be fair to the private sector.&rdquo;<br /><br />Darling has admitted the recession has been worse than expected. And while the government has promised more public spending to boost the economy in the short term, he said it will soon have to make cutbacks. <br /><br />&ldquo;The overall envelope will be much tighter,&rdquo; he said.<br /><br />His comments came yesterday as former Prime Minister John Major warned Britain would have to face a 5p increase in standard income tax if the government does not make swingeing cuts in state spending.<br /><br />Meanwhile former defence secretary John Hutton waded into the row, calling for further debate on public spending, because people expected honesty about future cuts.<br /><br />&ldquo;The position we are in is unprecedented,&rdquo; said Major in a television interview.<br /><br />&ldquo;We now have a deficit of &pound;180bn. Let&rsquo;s assume the Prime Minister is not going to cut public expenditure as he says, then there would have to be an increase in income tax.&rdquo;<br /><br />&ldquo;You may well get 5p on the standard rate, you may well get VAT at 20 per cent,&rdquo; he said.<br /><br />The question of how to tackle the massive budget deficit has sparked reports that civil servants have been drawing up secret plans to cut public spending by 20 per cent.<br /><br />Their plans would be handed to whichever party wins the next general election.<br /><br />But Bundred said politicians had to realise &ldquo;nothing should be off limits&rdquo; to make savings of &pound;50bn &ndash; including a pay freeze on Britain&rsquo;s 6m public-sector workers.<br /><br />&ldquo;At a time when inflation is likely to be between two per cent and three per cent, a pain-free way of cutting public spending would be to freeze public-sector pay, or at least impose severe pay restraint,&rdquo; he said.<br /><br />He angered unions by saying public sector workers had &ldquo;done well&rdquo; so far.