The Department of Health has written a detailed analysis in support of plans to award lower paid staff pay rises of up to 5.3 per cent, amid growing concern that the NHS paybill is unsustainable.

The DH’s evidence to the NHS pay review body backs the principle of awarding a flat payment of £250 in 2011-12 to staff earning £21,000 or less, affecting around 40 per cent of those on the Agenda for Change pay framework.

Added to incremental pay rises, the minimum increase for staff eligible for the £250 is 3.7 per cent, rising to 5.3 per cent for those on a £16,145 income.

The DH has not made any suggestions over restricting or freezing pay increments, which is widely supported by employers. This means the pay rises, added to historic pay drift, will require £950m – or a third - of the extra available annual resources of £2.9m.

The DH figures reveal that this will only be possible within the budget if there is a decrease in resources spent on activity growth and service developments, assuming productivity levels remain flat.

However, it is hoped that the quality, innovation, productivity and prevention agenda will allow activity levels to rise.

The government’s emergency budget announced a two-year pay freeze from 2011 for public sector workforces, but said those earning £21,000 or less should receive uplifts of at least £250.

The DH’s review body submission says an uplift of more than £250 is unnecessary for these staff, in light of current labour market conditions and as they also benefit from a relatively generous NHS pension.

But NHS Employers’ evidence to the review body warns that the tight financial climate means the NHS needs to go further in order to safeguard jobs and service levels.

Incremental pay progression, adding around 2 per cent to organisations’ paybills, will “seriously risk achievement of cost improvement plans”, it says.

It states: “There is a growing concern that the “freeze” will not in itself be sufficient to reduce the growth in the paybill needed.

“Unless this is addressed, increased cost pressures from earnings growth will not be affordable. This would need greater efficiency savings resulting in possible reductions in service provision and/or workforce numbers.”

Speaking at HSJ’s leadership forum on Monday, NHS director general of workforce Clare Chapman said employers needed to find a “more sophisticated” way of discussing how working conditions and pay could be “adapted” to maintain jobs.

But she said it would be inappropriate for the DH to try to make changes from the centre.

She said: “What would be unhelpful is, in an area where we’re looking for more prescribed freedoms, for us to be prescribing the answer across the country…particularly since labour markets are very different in different parts of the country.”