File image of Chancellor Philip Hammond in Downing Street Reuters

Chancellor Philip Hammond has defended himself amid claims that he labelled public-sector workers as "overpaid".

Hammond reportedly made the comments at a cabinet meeting last week where he refused to lift the 1% cap on government employees on the basis that they earn more than those in the private sector.

Appearing on the BBC's The Andrew Marr Show on Sunday (16 July), Hammond said it was inappropriate to discuss "out of context" quotes, but said he was happy to discuss the substantive issue.

"Public and private sector pay are on average around about the same level," he said.

"But when you take into account the very generous contributions that public sector employers have to pay in for their workers' pensions, their very generous pensions, they are still about 10 per cent ahead.

"And I don't for a moment deny that there are areas in the public service where recruitment and retention is becoming an issue, that there are areas of the country where public sector wages and private sector wages are getting out of kilter in the other direction and we have to look at these things and we have to discuss them."

Hammond's defence came after a cabinet source at the meeting told the Sunday Times: "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."

Hammond is said to have taken his comments further with regards to train drivers, who he allegedly described as "ludicrously overpaid," according to the report.

It follows earlier accounts of the meeting which had already embroiled the Chancellor in a sexism row for reportedly saying that trains are now so easy to drive that "even a woman" can do it – another claim which Hammond denied.

"No I didn't and I wouldn't say anything like that," he said.

"Again, I'm not going to get into what was or wasn't said in the cabinet meeting but I've got two daughters in their early 20s, both high-achievers, I don't think like that, I wouldn't make a remark like that.

"But what I would say is this and I've been saying this since I was transport secretary, it is a disgrace that 95 per cent of train drivers are men. There is no reason at all why that workforce should not be more gender balanced except that the unions control the recruitment and training process."