The first review of London pay allowances for nearly 30 years begins next week in an attempt to stop essential workers being priced out of the capital.
The Greater London Assembly inquiry aims to tackle the growing shortage of teachers, nurses and other workers such as bus and train drivers, who have been pushed out of the city by rising house prices.
It will be the first time the system of allowances for London workers has been examined as a whole since the disbanded London Pay Board looked at the issue in 1974.
London allowances were introduced in the Twenties to compensate for house prices and living costs far above the rest of the country. But they have failed to keep up with house price inflation.
A GLA spokeswoman said the capital was now "haemorrhaging" workers and allow-ances needed to be upgraded to deal with a crisis of recruiting and retaining staff.
There are currently wide variations between London pay allowances. The public sector average is £2,605 while police officers based in the capital can expect £6,051. Teachers and firefighters on average received £3,000, nurses £3,300, and bank and building society staff £3,500.
Alastair Hatchett of Incomes Data Services, which compiled the figures, said the problem affected a much wider area than London.
"When allowances were introduced more than 20 years ago they were specifically for London, but the house price rise has affected all of south-east England, as far as Bristol, the Essex coast and Northamptonshire," he said.
The inquiry's findings are expected to be published in June and will be sent to the Government, employers and trade unions for guidance in pay negotiations.
Bill Knight, who will lead review, said: "If we do our job properly, our report should help those who negotiate pay to set a fair London premium."