The economy could lose almost £10 billion if the Government presses ahead with controversial plans to introduce regional pay in the public sector, according to a new report.

A study for the TUC found no evidence that the pay of workers such as teachers, nurses and dinner ladies was preventing local firms from hiring staff.

Chancellor George Osborne raised the prospect of different rates of pay for public sector workers across regions, although other ministers have stressed the idea was intended to cut wage rates.

The TUC commissioned the New Economics Foundation (nef) to analyse ministers' proposals and said it found little evidence to support the Government's position.

The report said that within a worst case scenario where the pay of millions of public servants who live beyond London and the South East is brought down to private sector levels, as many as 110,000 jobs could be lost across England and Wales, and the cost to local economies would be £9.7 billion a year.

On a best case scenario, where nef assumed the Government was right and the pay of public servants was preventing private sector firms from recruiting because they were unable to match public sector salaries, the introduction of local pay rates for public servants would see the creation of only 11,000 jobs, the report found.

TUC general secretary Brendan Barber said: "Quite apart from the huge hit that public sector workers would have to take in their pockets if pay in parts of the UK is held down to 'allow' the private sector to catch up, this report shows that the move would also prove hugely damaging to local economies.

"Despite the concerns being voiced by MPs in the parts of the UK most likely to be affected by the introduction of local pay rates, the Government has so far refused to rule out this move that would hit public sector workers and their families - who are already feeling the financial pinch as they suffer the effects of a lengthy pay freeze - very hard."

Pay review bodies are due to report back to the Government this week on the effect of introducing regional pay rates.

Helen Kersley, of nef, said: "The research finds no economic case for regional pay variations. Our research finds the Government's proposals are based on flawed assumptions that are not borne out in reality. Cutting the wages of public sector workers is a high-stakes gamble from which there will be no winners."