NORTH EAST business leaders have warned the Conservatives that their Chancellor’s regional pay plans will devastate the local economy if they get the go ahead.

As the Tories gather in Birmingham, small and medium-sized firms from across the North East have signed an open letter uniting against George Osborne’s plans to limit public sector wages outside London and the South East.

Employers such as Paul Callaghan, head of Sunderland-based software firm the Leighton group, said the regional pay plans risked watering down the spending power of thousands of customers and hindering the economic recovery.

Mr Osborne announced last year he was considering moves which would see teachers, nurses and council workers paid less in the North than those doing the same job in the South, defending his moves by claiming the higher public sector wage made it difficult for private sector firms to recruit talented staff.

Those plans have since been widely criticised, with Hexham Tory MP Guy Opperman becoming the first in his party to speak out against them, alongside attacks by the Liberal Democrat Business Secretary Vince Cable.

In their letter 10 regional firms, from engineers to pub bosses and skills training groups, argue that the pay proposals would make even growth harder to achieve. “The spending power of our customers has an impact on our companies’ success and how many people we can employ,” the business leaders say.

“It is in this light that we urge the Government to reconsider its proposal to introduce regional or localised pay for the public sector.

“This policy risks weakening consumer confidence and demand even further, undermining regional growth and making it harder for the UK economy to get back on its feet.”

They add: “There are many things ministers could do to support economic growth, such as bringing forward much-needed investment in infrastructure.

“Now is a time for the country to unite and focus on growth, not risk a divisive and harmful policy such as this.”