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Pay rates in public-sector jobs to be made regional

The Government is to press ahead with introducing regional pay rates in public-sector jobs, the Chancellor confirmed yesterday.

George Osborne backed the principle of "making public-sector pay more responsive to local pay rates".

He told MPs that "London weighting" already existed in the public sector and the last Labour government had introduced local pay into the Courts Service.

"We should see what we can do to make our public services more responsive, and help our private sector to grow and create jobs in all parts of the country," he said.

"Some departments will have the option of moving to more local pay for those civil servants whose pay freezes end this year."

The move put him on a collision course with union leaders, who protested that the effect will be to drive down wages in Britain's poorest areas. "It's not public-sector pay rates that are stopping the private sector from creating jobs – it's our stagnating economy, a lack of money being lent by the banks for firms to invest, and consumers who are too worried about losing their jobs to spend," TUC general secretary Brendan Barber, pictured, said.

Dai Hudd, deputy general secretary of the Prospect union, said: "This ill-thought-through policy advocates holding down pay in certain areas of the country, based on the flawed economic logic that it will encourage local enterprise.

"The Cabinet Office should be ashamed to have produced such poor-quality evidence in support of a policy that has devastating implications for large parts of the UK and their local economies."

Employees of the Home Office and the departments of Work and Pensions and Transport could the first to receive local pay deals.

There was support for the move from business leaders. Simon Walker, director-general of the Institute of Directors, said moving from national pay scales to regional pay rates is "simply about recognising economic reality".

"In the private sector, wages vary across the country due to varying costs of living, so doing the same in public-sector salaries is a fair and reasonable change to make," he said.