I can only give my opinion of this proposal based on my experiences as a Civil Servant.
I worked out of an office situated in a poorer area of Manchester, located there as the premises were cheaper for the Government and i had no problems with with that what so ever. I live in a much more affluent area of Manchester where housing and associated cost are a lot higher. I am assuming that the wages would be linked to the office and this seems highly contentious and I wouldn't put it past the Government to relocate offices etc to less prestigious areas if it meant they could manipulate the wage bill in doing so..... As an illustration the offices dealing with the UK Retirement Pensions have been centralised and located in Fleetwood, Lancashire. What is to stop all other departments being centralised and located in areas which would allow the Government to pay the lowest wages possible despite the employees commuting from more affluent areas. I know a case can be made for relocating work to areas of greater unemployment but this work is already being done by existing employees most of whom already being paid less than their Private Sector equivalents.
At one time in the past Civil Servants wages were negotiated with the National Whitley Council acting as a go-between and in the main wages were assessed by comparing the wages paid to employees in the private sector. This went on for several years until the Government found that the private sector wages were invariably higher than those in the public sector and decided to change the basis of wage increases to a negotiated percentage increase which allowed the gulf to widen. When the percentage increase was under dispute we were always reminded that, compared to the private sector, our jobs were more secure and that our Pensions prospects were a lot better. ( Both these things being no longer true for current CS employees, so don't get me started on those issues)
This is the link to a site I have found interesting if any one wants to spend a few hours reading about the Civil Service
How to be a Civil Servant.