By politics.co.uk staff
Chancellor George Osborne will face pressure to freeze public sector pay for two years when he attends the Confederation of British Industry's (CBI) annual dinner later.
Britain's biggest lobbying group says the government could save £18 billion by halting rises in the total public sector pay bill.
Salaries in the public sector increased by 2.8% in 2009, compared to an overall fall in the private sector of 0.9%.
Mr Osborne is set to reveal more of his plans to bolster the economy in his speech this evening. The chancellor is likely to meet many of the CBI's former demands for additional support for business, with a reduction in corporation tax expected.
"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," CBI director-general Richard Lambert said.
"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."
The CBI has published a report, Time for Action: Reforming Public Services and Balancing the Budget, which it hopes will influence policymakers in the new coalition government.
It argues a "fundamental reshaping of public service provision" including the use of the private and third sectors is necessary.
Changing social care so that more patients could be treated in their homes and in the community could save £8 billion by 2015/16, for example.
"While spending cuts and efficiency savings are important, there is a much bigger prize to be had through fundamental re-engineering of public service delivery," the CBI's deputy director-general John Cridland said.
"Allowing the best provider to deliver public services will increase innovation, while keeping a lid on costs."
The CBI is also calling for the strengthening of apprenticeships, prioritising energy security and developing Britain's infrastructure for economic growth.