The Government’s austerity policy descended into chaos on Wednesday as Downing Street suggested it was ready to abandon a 1 per cent cap on public sector pay rises, only to insist hours later that the cap remained in place.

The “U-turn on a U-turn” was blamed on the ongoing “war” between Theresa May and Philip Hammond, after the Treasury reportedly demanded a retraction of the announcement. It led to speculation that the Chancellor had been intending to claim credit for the policy change at his next budget.

Three Cabinet ministers appeared to have been briefed that the pay cap was coming to an end as they openly talked about the need to consider lifting it, and Sir Oliver Letwin, the influential backbench MP, even went into detail about how taxes would have to be increased to fund it.

Number 10 then backed up their comments in a lunchtime briefing by saying it was ready to “listen” to voters who had made it clear they were “weary” of the spending squeeze. A spokesman added that ministers were “working through” the recommendations of independent pay review bodies and that a decision would be taken at a future budget.