FEARS of a brain drain from the North have forced the Government to exclude doctors, dentists and police from any prospect of localised pay deals.

But Treasury Minister Chloe Smith yesterday said other staff in the NHS, teachers and prison officers could be among public sector workers who could see their national pay bargaining structures axed.

That prospect has sparked warnings that workers’ pay in the North East will fall behind their London and South East counterparts, sucking money out of the regional economy.

Last November, Chancellor George Osborne ordered the independent Pay Review Bodies to look at how to make pay more “responsive” to local labour markets and stop the private sector being “squeezed out” in terms of salaries.

It will report back in July and changes could be introduced in 2012-14. But the move yesterday came under fresh fire from North East Labour MPs during a Parliamentary debate.

Bishop Auckland MP Helen Goodman said: “In the North East, the proposal has the potential to take between £500m and £1bn out of our regional economy every year.

“And yet the switch in capital to our regional economy under the Chancellor’s autumn statement was 0.1% or £4.1m, which is completely unbalanced.”

Plaid Cymru MP Jonathan Edwards, who secured the debate, said Ms Goodman had made an “excellent point” – and warned about the “brain drain element and the polarisation of wealth across the British state” of switching to localised pay deals.