Department of Health senior officials warned of 'a real danger of industrial unrest' if the government set next year's NHS pay award at 2 per cent - just a month before the DoH proposed an even lower figure.

A paper written by deputy branch head of NHS pay and pensions Stephen Johnson, which went to the DoH management board in September, discussed two possible proposals for next year's pay uplift.

One was a 2 per cent rise for all staff, in line with what it describes as an 'early steer' from then health minister Lord Warner, and the Treasury warning that public sector pay rises must not exceed that figure.

The paper, seen by HSJ, warned that staff-side negotiators would be likely to see the 2 per cent rise as below the rate of inflation and an 'attempt to claw back pay reform'.

It noted that, while the government used the consumer prices index measure of inflation (then at 2.4 per cent), the unions favoured the retail prices index, which at that time stood at 3.3 per cent. As a result, in a section on the 'presentation/handling' of such an award, the paper highlighted 'a real danger of industrial unrest'.

A month later the DoH evidence to the pay review bodies suggested a still lower figure of 1.5 per cent, angering unions.

Mr Johnson's paper suggested that by opting for a generic increase for all staff, the DoH may have averted controversy elsewhere. A second option under discussion in September was to offer consultants a lower pay award, of 1 per cent, while the rest of the workforce would be given 2 per cent. The paper indicated a belief that the Treasury might be sympathetic to the idea.

The document said that while the Treasury had hinted that a rate of 2 per cent was 'probably acceptable' for nurses and other health professionals, 'they have less sympathy for consultants' and 'seriously considered' blocking the 2.2 per cent recommendation received last year (staged at 1 per cent in April and 1.2 per cent in November) even though, as the paper pointed out, such action was 'virtually unheard of'. Last year, nurses received 2.5 per cent.

The paper discussed at length the problems that could be sparked by a targeted approach to the annual paylift: a 'real risk of industrial action from consultants' and the threat of the British Medical Association launching a judicial review over the staging of the awards, similar to the one it started last year.

The paper notes: 'The BMA began proceedings for judicial review last year as a result of the staging decision. This was only averted after DH took counsel opinion and we relied on the fact that other top earners in the public sector were treated the same. It is likely that the BMA may do the same again this year.'

The paper also suggested that the withdrawal of goodwill from consultants could outweigh the savings made by a targeted approach; with a 1 per cent rise in salary costed at about£44m, compared with£300m if all consultants refused to work one unpaid programmed activity.

It adds that the affordability of pay uplifts needs to take into account the effect on average earnings for NHS staff: 'The NHS pay bill increases year on year as a result of a number of factors such as the annual pay uplift, workforce growth, incremental progression, changes in grade mix and recently investment in pay reform. The combination of these factors means that the average earnings of NHS staff will increase by more than the annual uplift recommended by the [pay review bodies].'

But the paper admits that this is not a view endorsed by the Doctors and Dentists Review Body, which has previously indicated that it does not believe it is appropriate to take account of the gains made from pay reform when considering pay uplifts.