George Osborne has pocketed a spare £1bn before the budget next week to help fund a series of road and other infrastructure projects as the chancellor moves to reassure Tory heartlands that the government has ideas well beyond its divisive high-speed rail project.

The move was signalled in a little-noticed element of the public sector pay settlement which was otherwise dominated by warnings of possible strike action from NHS unions after the government denied staff an expected 1% pay rise.

The curb will save just £200m from the health department's £110bn budget next year.

Representatives of the NHS's 1.2 million nurses, midwives and other non-medical personnel in England accused the health secretary, Jeremy Hunt, of showing "complete contempt" for the 55% of NHS staff on "progression pay".

The news that Hunt had rejected a recommendation for approximately 600,000 NHS staff to be given a 1% rise dominated the reaction to the pay round.

The Treasury also announced that individual departments would have to make a greater contribution to pensions. This will give Osborne an extra £1bn that will help fund infrastructure projects to "balance" the HS2 high-speed rail line amid fears of ministerial resignations over the introduction of the hybrid bill on the project next month.

Sources close to the chancellor say that a series of road and other infrastructure projects, which have been drawn up by the Treasury minister and former Olympics chief Lord Deighton, will speak to the Conservative faithful opposed to HS2. One source said: "A strong focus on roads will speak to the heartlands that oppose HS2. This is very much in George's DNA."

The chancellor has room for manoeuvre after the Treasury moved around £1bn in public sector pension contributions from its "annually managed expenditure" pot to the "departmental expenditure limits". These have to be paid by individual departments.

The Department for Education will have to pay an extra 2.3%, working out at £330m in 2015-16 and £560m in 2016-17. For the civil service it will mean an extra 2.2%, working out at £275m a year from 2015-16 onwards. For the NHS it will be a 0.3% increase, working out at £125m a year from 2015-16.

One Whitehall source said: "There will be a £1bn figure in the budget roughly – just under. This will be scored – it will be a saving to the treasury which has been picking up this bill before. Instead it will fall into departmental budgets. The taxpayer has been picking it up in AME."

Government sources insist Osborne has not embarked on a pensions raid to secure an extra £1bn for the budget. Sources said that the chancellor had followed the recommendations in the pensions report by the former Labour minister Lord Hutton. The extra £1bn is a "consequence" of the Hutton recommendations.

One senior government figure said of the infrastructure spending plans: "George Osborne is going to be looking for ways of helping our people – that does not mean people who might vote Conservative but Conservative MPs in marginal seats. It is not necessarily things that will have Tory MPs excited ideologically. It is more about things that are going to affect their constituencies.

"He is going to look at ways of investing in infrastructure – visible things, road and rail. He is going to want to do things to balance HS2. It is not to demolish HS2. It is going to be in addition to HS2. He will also want to do things on flooding."

But Osborne faces a battle on another front after the furious reaction to the pay deal. Unite, which represents 100,000 staff, and the GMB, which has 30,000 members in the NHS, are now considering industrial action in protest at the settlement.

Graphic: Guardian graphics

Hunt ignored the NHS pay review body's recommendation that all staff should receive a consolidated 1% rise from 1 April because, he claimed, it would be "unaffordable" and would hit patient care by leading to staff cuts. Instead the 615,000 staff who already receive increments – annual pay uplifts based on experience and skills which are worth an average 3% of salary – will still get those in 2014-15 but nothing else.

The other 550,000 personnel who do not get increments will receive 1% extra pay next year, but it will not be consolidated and will come as monthly additional payments paid alongside their salary. That will cost an estimated £150m.

Hunt has also sidelined the pay review body (PRB), which has helped to set pay levels for the last 28 years, by offering staff a deal covering two years rather than the expected one, which means it will not report again until 2016.

Rachael Maskell, Unite's head of health, said its role would be defunct "if ministers continue to steamroller its copious evidence-gathering process".

She added: "We will be consulting our members about the possibility of industrial action" and accused Hunt of using divide and rule tactics towards the NHS workforce.

Rehana Azam, the GMB's national officer for health, said it was more likely to hold a ballot for industrial action after realising that the Department of Health was seeking to impose a two-year deal.

"GMB members will be outraged with government isolating NHS workers like this. They are attacking not only living standards but also the agreed way pay is set in the NHS. This makes a ballot for industrial action all the more likely," she said.

Unions also denounced Hunt for portraying salary gains through increments as the same as pay rises.

"To suggest incremental pay is the same as a pay uplift, or that NHS staff are simply being rewarded for time served, is to either deliberately mislead or to fundamentally misunderstand how NHS pay works," said Peter Carter, general secretary of the 400,000-strong Royal College of Nursing.

Hunt said the NHS could not afford both to pay increments, which comprise about £1bn of the NHS's £44bn paybill, and give everyone the 1% rise, which would have cost another £450m. "The PRB proposals suggest a pay rise that would risk reductions in frontline staff that could lead to unsafe patient care," he said.

But the Department of Health admitted that denying furious staff the 1% would save just £200m in 2014-15 – 0.18% of its £110bn budget – and another £400m the following year.

Dean Royles, chief executive of NHS Employers, also warned that a 1% rise would have added to "already significant cost pressures" at a time when "employers are recruiting more frontline staff with no additional money". This was not sustainable, he said. Hunt's approach would help avoid at least some staff cuts, Royles added.

The row comes as the chancellor prepares in his budget to reject calls from Tory backbenchers to focus on middle-income earners who are being dragged into the 40p tax bracket.

Osborne will insist that the Tories must go into the election next year as the low-tax party, focused on cutting taxes for the low-paid, as he focuses on raising the personal tax allowance above £10,000.

One Tory said: "We have to be consistent and maintain our message that those with the broadest shoulders must bear the greatest pain in tackling the deficit. It hurts us to be seen as the party of the rich so we have to show that we are focused on people earning the minimum wage."

The chancellor will hope that the extra spending will go some way to appeasing Tory MPs who are angry that he is spurning middle income earners on just over £40,000 who being dragged into the 40p tax rate. One senior figure said: "The chancellor is under a lot of pressure from a lot of Conservative MPs who really do speak for the middle class in the middle – to use the Miliband phrase it is the squeezed middle. They are desperately looking for some help in this area."

As the Treasury made clear that tax cuts – by raising the personal allowance over £10,000 – would be focused on the low paid, Ed Balls is trying to outmanoeuvre the chancellor on tax cuts for the poor. The shadow chancellor called on him to scrap the marriage tax allowance and introduce a mansion tax to pay for a 10p starting rate of income tax.

Balls told the BBC: "We think what we should actually do is scrap the married couples allowance which is perverse and unfair, and use that money to give a tax cut for all middle and lower income families. We propose a new 10p starting rate of income tax, it's better than the personal allowance, because it's better for work incentives, it would help two-thirds of married couples, it would help women as well as men, families with children."