The government will commit to a new code of practice on senior pay setting in the public sector, today’s Budget announces, with a warning senior staff should “show leadership in pay restraint”.

The code will include a greater use of so-called “taxpayer champions” and will set out how the decisions of independent pay committees such as the senior salaries review body will be “escalated” to ministers or regulators if they propose pay increases “above agreed norms”.

The Budget sets out government plans to save £3.4bn a year by capping public sector pay uplifts at 1 per cent between 2011-12 and 2012-13.

The new code is recommended in the report due to be published this afternoon by the senior salaries review body. The report is in response to a letter to the body from prime minister Gordon Brown in December which described the government as having “serious concerns about the high levels of senior pay in some parts of the public sector”.

The prime minister asked the body to develop a set of principles to government pay awards across the public sector and to establish a method for benchmarking pay and bonuses as well as calculating the “total value” of the “public sector package”, which would take into account the relative extra value of job security and flexibilities compared with working in the private sector.

Budget cuts NHS spending estimate by £500m