NHS employees can expect a prolonged wage squeeze and a possible end to national NHS terms and conditions, the government has signalled.

Chancellor George Osborne has announced in his autumn statement that public sector wage rises will be capped at an average of 1 per cent for two years from April 2013.

pay in the NHS for all those earning over £21,000 has already been frozen this year and is set to be frozen again in 2012-13, excluding incremental rises which average 2.5 per cent or more in most trusts.

Mr Osborne also said he will ask the independent pay review bodies that advise ministers to “consider how public sector pay can be made more responsive to local labour markets”.

The outcome of the review is expected by July 2012 and could potentially lead to the national pay framework Agenda for Change being ripped up. However, until the PRB review’s terms of references are published this remains unclear.

The July 2010 white paper Equity and Excellence: Liberating the NHS said pay decisions “should be led by healthcare employers rather than imposed by the government”.

But it added: “It is likely that many providers will want to continue to use national contracts as a basis for their local terms and conditions.”

Sources to whom HSJ spoke immediately after the statement thought it was likely that the review could lead to particular elements of Agenda for Change being negotiated locally. This could include nationally set benefits such as annual leave entitlements, sick pay and overtime, which many trusts feel are too generous.

NHS Employers director Dean Royles said in his speech to the organisation’s annual conference earlier this month that Agenda for Change had been a “great achievement” but “circumstances had changed” and there was a need for local and national talks.

However, some foundation trust chiefs admit that making trusts negotiate every single change to employment conditions locally is likely to be resource-intensive.

Over recent months, employers have been agreeing local on-call pay with unions, but HSJ understands only a small number have been signed off, while there are a significant number of legal disputes.

Royal College of Nursing head of employment relations Josie Irwin said: “We need some clarity in what [the government is] saying.

“We’ve always been keen to point out that when the NHS is experimenting with local bargaining it takes the main focus away from the health of its patients.”