Under plans expected to be unveiled in this week’s Budget, national pay deals for public sector staff would be scrapped in favour of regional pay deals which would reflect local labour market rates.
It is thought that workers in Scotland, Northern Ireland, Wales and northern areas of England would be among the hardest hit.
It prompted SNP ministers to claim last night that some public servants could be “penalised” for where they work.
The move follows research into the disparity between private sector pay and public sector pay in different parts of the country.
Treasury research suggests the pay gap ranges from 18% in Wales to just 0.5% in the south-east of England.
In Scotland, a recent study by the Institute of Fiscal Studies showed that women in the public sector are paid about 20 per cent more than those who work in the private sector.
The Treasury view is that pay rates should take into account local factors, such as the cost of living and be more in tune with private sector pay rates, to ensure that they better reflect local circumstances and do not “crowd out” private sector activity.
Consequently, officials describe the plan as “pro-growth”, as it would encourage more people to move into private sector opportunities. However, critics argue that the measures will remove cash from the economy in some parts of the country worst affected by the financial downturn.
It is understood that no current employee will suffer a pay cut as the new regional rates would be introduced gradually and, perhaps, only for new recruits.
In Scotland, all public sector staff earning more than £20,000 a year are having to swallow a pay freeze, whether they work for the UK or Scottish governments. Such freezes are reducing the disparity between public and private sector salaries, but because of the impact of the post-2008 recession, private sector salaries remain lower on average.
The new policy may first apply to staff at the Department for Work and Pensions, the Home Office and at the Department for Transport. In Scotland, those who could be affected include the thousands of public sector workers employed in UK departments, including the DWP, the Department for International Development and HM Revenue and Customs.
Those who are employed under the Scottish and local government pay bargaining schemes would not be affected at this stage.
Finance secretary John Swinney warned last night that the move would be “totally irresponsible”. He said: “While Scottish ministers set pay policy for devolved bodies, public sector workers employed by UK departments would be affected.”
He added: “This move could potentially penalise public servants in Scotland and damage public services – increasing regional pay disparities and resulting in spending cuts to pay for higher public spending in London and the South East – hindering our efforts to share growth across all of the country. The Chancellor must think again about his half-baked plan.”
Wales’s first minister, Carwyn Jones, said the government should be trying to improve regional disparities in pay, not making them worse.
“People work hard. Nurses work hard, police officers work hard, teachers work hard,” he said. “Why should they be penalised because of where they live? Surely we should be looking at a situation where we look to close the gap in income between different parts of the UK rather than make it worse, which is exactly what this will do.”
Northern Ireland’s finance minister, Sammy Wilson, said he would oppose any attempts by Westminster to set local pay variations in the public sector.
However, Business Secretary Vince Cable said: “The idea of having more flexibility in the public sector is surely right.
“What we are trying to do is to make sure that throughout the public sector there is more genuine decision-making at a local level and you have to take into account pay and conditions. But it has got to be done very carefully.”