Unions today stepped up demands for the Government to scrap controversial plans for regional pay in the public sector after the Deputy Prime Minister said no final decisions had been taken.
Nick Clegg said during a visit to a school in London that the idea of "local" pay was simply being looked at.
Chancellor George Osborne sparked fury among public sector unions when he announced in the Budget in March moves towards introducing different levels of pay in regions of the UK.
Mr Clegg said: "There is going to be no regional pay system. That is not going to happen. No decisions have been taken.
"All that has been asked is something which happened under the last government - they did it in the Crown Court Service - which is 'is there, in specific cases, a justification to allow local, not regional, local market-based costs to be reflected in the way people are paid in the public sector?'.
"It is being looked at. Nothing has been decided. I feel very, very strongly as an MP from South Yorkshire with a lot of people in the public services, that we are not going to do anything which simply willy-nilly exacerbates a north-south divide.
"There has been some ludicrous scaremongering, particularly from the trade unions, about what is intended when there is no proposal on the table at all.
"I really do think it's important that people should be reassured that we are not just going to sort of rush headlong in imposing a system from above which, if it was done in the way some people describe, would be totally unjust because it would actually penalise people working in some of the most difficult areas."
Brian Strutton, national officer of the GMB union, said: "The Deputy Prime Minister appears to be softening the line on regional pay previously put out by the Chancellor. This is welcome not least because there is no evidence to support the Chancellor's original contention that public sector pay somehow crowds out pay in the private sector. This was always nonsense and Mr Clegg has successfully refuted the Chancellor's argument."
Unison called on Mr Clegg to convince Mr Osborne to ditch the "divisive" plans to introduce regional pay in the public sector.
General secretary Dave Prentis said: "If Nick Clegg disagrees with regionalised pay he should convince George Osborne to ditch his divisive plans. Far from being about making pay fairer, plans for regionalised pay in the public sector are simply a cost-cutting exercise. Not a single public sector worker will get a pay rise, but many will see their pay cut.
"Regional pay would hit communities hard, entrenching low pay in certain areas. This would cut consumer spending in local economies which they desperately need to recover from the recession. Stopping the level playing field in the public sector could also spark a skills shortage in areas where pay is set lower."
TUC general secretary Brendan Barber said: "Members of the Government seem to be facing in different directions over regional pay plans.
"Public sector workers whose family budgets are under huge strain as they cope with the effects of a lengthy pay freeze would like to know whether ministers intend to press ahead with these damaging plans and permanently squeeze their pay.
"Towns and cities across the UK are already struggling to cope with the loss of consumer spending as jobs are cut in both the public and private sectors, and as those still in work rein in their spending for fear that they will be next.
"Holding back the pay of nurses, teachers and dinner ladies in Newcastle, Plymouth and Norwich will deal local economies a further damaging blow, risk causing recruitment problems in our public services outside London and the South East and won't help local businesses take on new staff either."
Prime Minister David Cameron's official spokesman said: "What the Deputy Prime Minister was doing was setting out the Government's position on this issue, which is that we are looking at the idea of local pay, which is used in some parts of the public sector and I think is used in the court service already.
"They have local pay rates which respond to local labour market conditions.
"There is a process ongoing with departments looking at whether it makes sense to have a similar approach in other parts of the public sector.
"It is a core part of our economic strategy to rebalance the economy not only from public to private sector and away from one particular sector of the economy, but also rebalancing the economy from one corner of the UK."
The spokesman said Chancellor George Osborne originally announced plans to look at local pay in his Autumn Statement last year, but that no decisions have been taken.
Last week, the Welsh Government published new evidence on regional and local market pay which described arguments put forward by the UK Government as "flawed".
Welsh finance minister Jane Hutt said: "The evidence shows that the widespread opposition to regional public sector pay is very well founded. The Treasury's submission is full of assertions made without any solid basis in the evidence.
"It is clear that a number of important factors have simply been ignored in the Treasury's analysis, and that once these are factored in, there is no clear evidence that a persistent pay differential exists across the public sector as a whole.
"A policy of regional or local market-facing public sector pay would be economically damaging and socially divisive for Wales. Driving down pay in our most disadvantaged communities at a time of economic stress and exacerbating pay gaps between men and women would be bad for Wales and harmful to the UK as a whole."