The government has rejected proposals to increase NHS staff pay by 1 per cent across the board and will instead impose a two-year deal in which staff who receive incremental pay awards get no further rises at all.

Most employees not eligible for incremental rises will receive a 1 per cent rise, with the exception of 400 very senior managers in the NHS who will have their pay frozen in cash terms for the next two years.

The independent NHS Pay Review Body recommended a 1 per cent uplift across all pay scales but ministers have rejected this, citing the “unaffordable” cost of a 1 per cent increase.

NHS Employers has estimated the cost of an across-the-board 1 per cent increase at £500m.

Under the plans revealed today staff eligible for incremental pay increases on the Agenda for Change framework, which usually average at 3.4 per cent, will receive only these increments. Staff due to receive incremental rises of less than 1 per cent will have these uplifted to 1 per cent. This will affect around 55 per cent of staff on Agenda for Change which covers almost one million workers.

Employees at the top of their pay bands, and therefore not eligible for an incremental rise, will get a 1 per cent rise. However, these rises will be non-consolidated – meaning they are not added to employees’ substantive pay or pension. This is to avoid permanently widening the pay gap between staff at the top of their band and those on lower pay points. This will affect 45 per cent of staff.

This deal will also apply in 2015-16 when staff at the top of their band will receive a 2 per cent pay rise but this will again be non-consolidated.

The consolidated pay scales remain unchanged and will continue to be the basis for additional earnings such as overtime and unsocial hours enhancements.

Doctors and dentists will receive a 1 per cent pay uplift.

The government claims the deal will save over £200m in 2014-15 and over £400m in 2015-16.

NHS Employers chief executive Dean Royles said: “These are really tough calls for the government to make. We know how disappointed staff will be.

“Employers are recruiting more front line staff with no additional money and this is not sustainable. The simple fact is that the decision to have no annual pay increase for those already eligible for increments will help ensure more that staff remain in employment than would otherwise be the case.

“Even with limiting the increase to staff at the top of their pay scales, employers still face a £150m pay bill pressure this year. This is bound to have an impact.”

However, Christina McAnea, head of health at union Unison and chair of the staff side council, accused the government of “riding roughshod over the PRB.”

She added: “The government has shown complete contempt for the NHS, contempt for staff and contempt for patients and will pay the price at the ballot box.”

“Increments are not a substitute for the annual pay rise that is needed to meet the increasing cost of living.”

Rachel Maskell, head of health at the union Unite, said it would be consulting with its members about the possibility of industrial action. The union has around 100,000 members in the health service.

She added “Jeremy Hunt has adopted a divide and rule tactic which calls into serious question the relevance of the so-called independent PRB.

“He is deliberately muddying the waters by trying to imply that the annual increment that staff receive, as they gain more skills to benefit patients throughout their careers, is part of the annual pay increase – it is not. It is despicable that Hunt has adopted such an underhand tactic. 

“The PRB’s role is defunct, if ministers continue to steam roller its copious evidence gathering process which leads to its considered recommendations on pay.”

Mr Royles accepted unions would be angry but said he hoped they would recognise the need for job security adding that doctors now needed to agree to changes to their pay, terms and conditions.

Treasury chief secretary Danny Alexander said: “We need to continue with public sector pay restraint in order to put the nation’s finances back on a sustainable footing.

“We are delivering on our commitment to a one per cent pay rise for all except some of the most senior public sector workers.”