Plans to end national pay bargaining in the public sector raise questions about whether higher education's current system "can survive the short, let alone medium, term", according to a senior human resources director.

George Osborne, the chancellor, unveiled plans to make public- sector pay "more responsive to local labour markets" in his autumn statement last week.

A Treasury source told a national newspaper that the government would "bring national bargaining to an end" in the public sector, to boost the private sector in regions heavily reliant on higher-paid state employment.

At present, 151 higher education institutions negotiate with the sector's five unions at national level via the Universities and Colleges Employers Association, agreeing a pay spine and annual pay rises that apply UK-wide for most staff, from cleaners through to senior lecturers.

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Matthew Knight, chair of Universities Human Resources, said: "The chancellor's comments...will prompt further heart searching about whether [higher education's] current system can survive the short, let alone medium, term."

But Mr Knight, human resources director at the University of Leeds, said local pay would not be a "cheap option" for employers in the short term. He called for employers to "maintain an open and honest dialogue with the trade unions as we individually and collectively assess next steps".

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Alison Wolf, Sir Roy Griffiths professor of public sector management at King's College London, said: "If it really does go in the other parts of the public sector, then I don't see how it can really last in HE.

"But in any case, in the current climate, and especially if there is real competition with further education, which has more flexible pay-scales, I think a lot of institutions are surely going to be faced with serious problems."

The sector's new fees and funding system puts national pay bargaining under strain by bringing greater divergence in institutional incomes.

Universities likely to thrive under the new system, such as Durham and Exeter, are considering offering their own, higher pay rises to compete for staff.

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The University and College Union supports national bargaining, but is preparing for any move to local deals.

The union believes that such moves could start a process of "leapfrogging" - the pressuring of universities to improve pay rates to match their competitors.

Mr Osborne also announced a two-year 1 per cent cap on public-sector pay increases, following on from a two-year freeze.

Although universities are not part of the public sector, the government said in its 2010 grant letter to the Higher Education Funding Council for England that it was "essential that the sector exercises pay restraint, at a time when there is a pay freeze in place across other sectors in receipt of public funding" - and may repeat those warnings.

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Sally Hunt, the UCU general secretary, said she had "no doubt that Ucea will use the government's latest attack on the public sector in their efforts to drive down staff pay", but that the union would submit a pay claim as usual.

john.morgan@tsleducation.com.