Chancellor George Osborne has claimed there is a “clear case” for changing the national NHS pay deal in a letter setting out eight areas to be considered in a forthcoming review.

The review is to consider how to make Agenda for Change more “market facing in local areas”, according to the letter sent to pay review body chair Jerry Cope yesterday.

The review body has been tasked with carrying out the review. Mr Osborne’s letter said it should consider:

* The need to recruit, retain and motivate suitably able and qualified staff across the UK

* The difference in total reward between the NHS workforce and those of similar skills working in the private sector by location – and the impact of those differences on local labour markets

* How private sector employers determine wages for staff in different areas of the country

* The most appropriate areas or zones by which to differentiate pay levels

* The affordability of any proposals in light of the fiscal position; these should “not lead to any increase in paybill in the short or long-term”

* The need to ensure that proposals are consistent with law on equal pay

* Whether and how the new approach could be delivered within national frameworks

* Whether proposals should apply to existing staff, or just to new entrants.

Mr Osborne announced the review in his autumn statement last week, when he also announced public sector pay would be capped at 1 per cent a year from 2013-15, following a two year freeze.

His letter says: “…as review bodies have noted in the past, there is substantial evidence that the differential between public and private sector wages varies considerably between local labour markets.

“This has the potential to hurt private sector businesses that need to compete with higher public sector wages; lead to unfair variations in public sector service quality; and reduce the number of jobs that the public sector can support for any given level of expenditure.”

The government believes there is a “clear case for seeking to correct these problems,” it says.

A “detailed remit” in relation to the NHS workforce will follow the letter, which “may also raise other pay reform issues,” it adds.

The PRB has been asked to submit initial findings by 17 July 2012, to be fed into the government’s decision concerning the 2013-14 pay round.

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