THE 'MINI-budget' saw the death of one of the Chancellor's key ideas for reviving the North-East's economy - when plans for lower 'local pay' in the public-sector were dramatically dropped.

George Osborne had vowed to end national pay bargaining to allow lower rates than in London and the South-East - convinced it was vital to encourage private firms to invest.

The Treasury even argued lives would saved in the South, because hospitals in "high-cost areas" were unable to top up salaries and struggled to recruit enough staff.

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But the policy was comprehensively demolished by independent pay review bodies today (Wednesday, December 5). The NHS report concluded: "We were struck by the universal lack of support for local pay deals in the NHS."

In his statement, Mr Osborne said: "We commit to implement these reports.

"This means continuing with national pay arrangements in the NHS and prison service and we will not make changes to the civil service arrangements either."

The announcement delighted Sedgefield MP Phil Wilson, who said: "The review bodies have shown some common-sense. The Northern TUC, and North-East MPs of all parties, who opposed this have been vindicated."

Schools will be allowed to link teachers' pay to classroom performance, but Labour appeared relaxed that this would be within on overall pay framework.

Meanwhile, the Chancellor included a long hoped-for road scheme - the upgrading of the A1 between Leeming and Barton, in North Yorkshire - among £5bn of infrastructure projects going ahead.

Work will begin on the £378m improvement next year and be completed in 2016, or 2017, finally bringing the entire route from Newcastle down to the M25, around London, up to motorway standard.

Meanwhile, local enterprise partnerships (LEPs) will be able to bid for an extra £250,000 each year to deliver their strategic plans and for a £1.5bn loan for a single infrastructure project.

There will be a new "local pot" of cash in 2015, to deliver housing, transport, skills and welfare-to-work schemes - a nod to radical plans put forward by Lord Heseltine - but with no details on how much each LEP might receive.

The Chancellor also announced the expansion of ultra-fast broadband in 12 cities, including York. And there will be a further increase to the regional growth fund.

Meanwhile, he faced the embarrassment of missing one of his cherished economic rules - that debt will be falling as a proportion of GDP, by 2015.

Instead, he was forced to extend the "age of austerity" by at least one further year, to 2018 - despite pledging, two years ago, to "balance the books" by the end of the parliament.

Britain's economy is now forecast to shrink this year - by 0.1 per cent - and growth will be sluggish next year, at just 1.2 per cent, according to the independent Office of Budget Responsibility (OBR).

In the Commons, Mr Osborne faced howls of laughter from the Labour benches as he told MPs: "It's taking time, but the British economy is healing."

He added: "We are making progress. It's a hard road, but we are getting there. Britain is on the right track - and turning back now would be a disaster."

But Ed Balls, the Shadow Chancellor, hit back, saying: "After two and a half years, we can see - and people can feel in the country - the true scale of this government's economic failure.

"And it is people already struggling to make ends meet - middle and lower income families and pensioners - who are paying the price."

A spending review will announce, by next summer, where an extra £10bn of cuts will be found for 2015-16 - which means the Conservatives and the Liberal Democrats must reach agreement.

Before then, Mr Osborne has set what many saw as a cunning trap - a Bill to enact the three-year real-terms cuts to working benefits, which he is confident will be popular and which he will defy Labour to vote against.

However, Labour argued 60 per cent of those hit are in work, receiving tax credits. The party claimed that, with other tax and benefit changes, a one-earner family on £20,000, with two children, would lose £279 a year, from April.