Regional pay doesn't add up

This means that its efforts "to develop and promote new policy ideas which deliver better public services, a stronger society and a more dynamic economy" are state-subsidised.

It was set up by ex-public schoolboy Tory MPs Nick Boles, Michael Gove and Francis Maude a decade ago, so the fact that its "investigations" recommend greater insecurity and social cleansing for council tenants, reduced pay levels for teachers, a ban on national strike ballots, lower police pensions and now regional pay for the public sector should amaze no-one.

Nor should David Cameron's soft spot for Policy Exchange be surprising.

The Prime Minister must be delighted to have an organisation to develop and test-drive policies in line with the most rabid Tory backbencher's wet dreams and to have its supporters' financial donations topped up by the taxpayer.

Policy Exchange's obsession with slashing pay levels in the public sector is predictable, given the wealth of its founders and backers.

None depends on public services, other than the police to protect their property.

Reduced expenditure on public-sector workers' pay and service provision may distress hundreds of thousands of the most vulnerable people in society, but it could allow George Osborne to trim a bit more off the top rate of tax so that the rich can become even richer.

Policy Exchange claims that its reports are evidence-based and rigorously analysed, but its arguments for regionalised pay show little understanding of reality or the likely effect of its implementation.

If national pay rates, with additional weighting for higher-cost areas such as London and the south-east, are inefficient or unaffordable, profits-driven large national private companies would replace them with regional pay.

That doesn't happen because, outside London and the south-east, there are no huge regional discrepancies in either earnings or cost of living levels to take into account and it makes administrative sense to engage in one forum of pay bargaining rather than a multiplicity of processes.

Nor has the example of a few dozen local authorities in south-east England that opted out of national pay bargaining in the past 25 years had the effect of cutting pay. Pay policy in most areas has followed national pay bargaining outcomes.

Even were the Policy Exchange proposals to be accepted, do its supporters believe that the results would assist in building the "more dynamic economy" the think tank claims to champion?

The view advanced that private businesses are unable to recruit staff because of higher wages being paid in the public sector is unsustainable.

Private small businesses are on their knees because their potential customers cannot afford to buy in light of rising unemployment, underemployment and reduced spending capacity.

Cutting public-sector pay in poorer regions would not encourage private investment or expansion because the local economy would be further depressed by a generalised reduction in consumer demand.

The answer to a stagnant economy and reduced living standards is not to be found in the government's generalised attack on workers' living standards, especially in the public sector.

Only a real alternative, such as the People's Charter, based on taxing the rich and big business, extending public ownership, supporting manufacturing, increasing pay and pensions and strengthening public services can offer a credible way forward.