London Editor
Health Secretary Andrew Lansley has said pay cuts are neither "necessary" nor "desirable" under plans being drawn up by NHS bodies in the South West.
Twenty organisations that run hospitals and health services in the region have proposed forming a consortium to set pay and conditions to cut costs.
Unions have dubbed the move away from national pay agreements as a "cartel", and leaked documents suggest staff could be sacked unless they agree to drastic changes.
During a debate on the NHS in the Commons, Mr Lansley renewed his support for pay that has local "flexibilities" but said he opposed pay cuts.
He told MPs: "No proposal for the reduction of pay or the dismissal and re-engagement of staff is, in my view, desirable or necessary."
The termination of all staff contracts and a reissue on different terms is one of a series of proposals on the table, according to leaked documents.
Cutting salaries and sickness benefits and making staff work longer hours are among ideas floated to slash the regional pay bill from 68% to 60% of running costs.
The NHS is under pressure from the biggest efficiency drive in its entire history, with the service expected to have found at least £20 billion in savings by 2015.
At the same time, the Government is considering introducing local pay scales across the public sector, such as in schools.
The grouping – officially called the South West Pay, Terms and Conditions Consortium – includes organisations running hospitals in Plymouth, Exeter and Truro.
The trust – including Devon Partnership NHS Trust, Dorset County Hospital NHS Trust, North Devon Healthcare NHS Trust, Plymouth Hospitals NHS Trust, Royal Cornwall Hospitals NHS Trust, Royal Devon and Exeter NHS Foundation Trust, Somerset Partnership Trust, Taunton and Somerset NHS Trust and Yeovil District Hospital NHS Foundation Trust – have board approval to sign up to the agreement.
In the Commons debate, St Ives Liberal Democrat MP Andrew George warned the move would "drive down pay and morale" while Plymouth Moor View Labour MP Alison Seabeck said the consortium "has shown no great desire" to talk to unions.
And Labour's Shadow Health Secretary Andy Burnham asked: "Do the Government support regional pay in the NHS and the other moves planned by trusts in the South West?
"If they do not, will they today send a clear message to NHS staff in the South West that they are prepared to overrule NHS managers?"
In response, Mr Lansley said the Government supported "flexibilities in the pay framework that are necessary for them to recruit, retain and motivate staff".
He added: "I have made it clear that we are not proposing any reductions in pay as a consequence. I do not believe they are necessary or desirable in achieving the efficiency challenge."