Philip Hammond is at the centre of a cabinet storm after a report he told ministers that public sector workers were “overpaid”.
The chancellor made his comment at Tuesday’s weekly cabinet meeting, according to the Sunday Times.
The Treasury denied he had used the words attributed to him by the newspaper.
The report had quoted 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.”
It added that five sources had attested to the chancellor using the word.
The allegations came at a sensitive moment for the government with ministers under increasing pressure to lift the 1% public sector pay cap.
It prompted speculation that Hammond was the victim of a briefing war, as ministers jockeyed for position to succeed Theresa May.
It came just 24 hours after a report in the Sun claimed the chancellor told the same meeting that driving a train was now so easy “even” a woman could do it.
According to the Sunday Times, Hammond said public sector workers were “overpaid” when their pensions were taken into account and that train drivers were “ludicrously overpaid”.
A Treasury source said: “The chancellor was describing the public sector pension premium. He did not say that public sector workers were overpaid.”
Hammond has angered hardline Brexiters in the cabinet – including the foreign secretary, Johnson – by arguing for a deal which prioritises jobs and economic growth over controlling immigration.
He has also warned of the need for a lengthy transitional period after Britain leaves the EU to prevent business falling off a “cliff edge” – seen by some hardliners as an attempt to reverse last year’s referendum vote by stealth.
The latest claims came as the Mail on Sunday reported that supporters of the Brexit secretary, David Davis, were hoping to enlist Hammond’s backing to help see off Johnson in the event of a leadership contest.
Leading public sector organisations denied that workers were overpaid.
A spokesman for the Royal College of Nursing said: “Nurses across the UK are being forced to take second jobs, rely on family handouts or even turn to food banks.
“It would be insulting of the government to claim these people earn too much.
“The government holds pay awards below inflation and forces year-on-year pay cuts on public sector workers.
“Nursing staff earn 3,000 less per year in real terms compared to 2010. Our protests will continue until the government scraps the 1% cap.”