Business leaders have called for an immediate freeze in the public sector pay bill under moves to control public finances.

The Confederation of British Industry said increases for frontline staff and the lowest paid would still be justifiable, but argued the total pay bill should not increase for the next two years.

The business group said pay freezes had been commonplace in private firms during the recession, leading to a 0.9 per cent fall in average pay last year, but wages had grown by 2.8 per cent in the public sector.

Setting out its priorities for the new government, the CBI said selected public sector pay and recruitment freezes could save £18bn over the next two years.

The move should be coupled with measures to allow businesses to create jobs and drive economic growth, it was argued.

Ministers were also told that a further £8bn could be saved by 2015-16 through increasing the involvement of private firms and the third sector in re-shaping service provision.

Other suggestions included opening up public services to greater competition, reducing sickness rates and allowing private firms to run non-core activities.

Richard Lambert, director general of the CBI, said: “We have a new government with a determination to get a grip on the public finances and the political will to do it. We need to see a detailed plan for achieving this in the Budget.

“Experience suggests that the best way of bringing down a substantial deficit without damaging growth is through spending restraint rather than raising taxes.

“With a public sector squeeze looming, the new government must also do everything it can to create the right conditions for the private sector to sustain and create new jobs.

“That means providing certainty around taxation and energy policy, sustaining capital investment, and strengthening our skills base. Above all, we need to send a strong message to the world that the UK is open for business.”