The Fire Brigades Union is prepared to postpone the start of Friday's potentially disastrous eight-day strike if progress is made in this week's talks, the Guardian has learned.
"We are prepared to talk about real modernisation of the service if they are prepared to talk about real money on the table," a union source said.
The conciliatory move was matched by the deputy prime minister, John Prescott, who yesterday said "an exceptional case" could be made for the firefighters, and indicated extra cash might be found for the first year of a two-year deal. Ministers are also willing to float a three-year deal to make the headline offer more palatable to the FBU.
Mr Prescott, who spent two hours at the weekend at a fire station in his Hull constituency, urged the FBU to "take the gun away" by suspending Friday's stoppage. Ministers recognise that an eight-day strike is not only dangerous but may force them to order far more radical strike-breaking options involving the police.
Mr Prescott will meet the FBU general secretary, Andy Gilchrist, today ahead of the resumption of formal pay talks. The FBU is thought to be willing to negotiate around the 16% mark, in contrast to its earlier insistence of sticking to its claim for a 40% rise.
A confidential report obtained by the Guardian confirmed that fire authority leaders in July proposed a 16.1% rise to £25,000 a year to avoid damaging strikes, but ministers refused to fund the deal.
The leaked 24-page paper, which conceded that firefighters had slipped in the pay stakes, proposed phasing in the award over two years - 6.8% this month, 4.35% in April and 4.2% next November. It demanded the modernisation of working practices which both the government and the Bain pay review report have called for.
It said: "The proposed implementation period would cover two normal review dates ... Assuming that they would each produce increases of 3.5%, the new money increase implicit in the proposal would be about 9%."
A senior member of the employers' team said the document's circulation had been tightly restricted and the offer was not formally put to the FBU when the government refused to provide funds.
"If we had gone ahead with the plan it may have averted the strikes, or it may not," he said. "The truth is we never got to make it because at a very high political level we were told it would not be funded."
Mr Prescott last week told MPs it was a "load of rubbish" to claim the government had blocked a 16% rise but Mr Gilchrist said last night: "There is no doubt in my mind that had the offer been put to us last July I'm fairly certain it would have resulted, after a lot of negotiations, in a settlement that would have avoided the strike."
Mr Prescott's hint of more money came despite warnings from the Treasury and the governor of the Bank of England, Sir Eddie George, that the economy would be severely damaged by a strike-engendered inflationary pay deal.
There are also signs of tension between Mr Prescott and Tony Blair over the dispute's handling. The FBU said Mr Prescott had told firefighters in Hull: "I have told Tony Blair to keep his nose out of it and let me deal with it." But his office said he had said: "I have the authority of the prime minister and nobody else is shoving their nose in it".
In his most conciliatory remarks for some time, Mr Prescott told the BBC: "We are quite prepared to make an exceptional case, provided there is ... modernisation of the service."
But Sir Eddie warned that a high settlement would lead to "a real risk that other elements in the public sector, first of all, would say 'me too'. That would be very difficult to stop if it were allowed to start. I think one has to recognise that if we got wage inflation driven by the threat of strike in this way, that would impact the whole of the economy. We would see, not just inflation higher, we would see unemployment higher and I think it would be very damaging indeed".
Gordon Brown is expected to underline this message in the Commons today by promising "there will be no risks with inflation, no short-term quick fixes, no unacceptable spending beyond our settlement of last July, no inflationary pay awards".
