Liz Truss was on Tuesday forced to abandon her plan to cut the pay of public sector workers living in poorer areas of Britain by a total of £8.8bn, after the proposal drew ferocious cross-party criticism.

The foreign secretary’s Tory leadership rival Rishi Sunak had claimed Truss’s plan for regional pay settlements would leave millions of nurses, police officers and soldiers an average of £1,500 a year worse off.

Truss scrapped the plan on Tuesday morning, little more than 12 hours after launching the proposal, in the first major unforced error of her campaign to become Britain’s next prime minister.

Former chancellor Sunak hopes that Truss’s mistake could prove to be a turning point in the Tory leadership contest. He is expected to remind Truss of the abortive policy in a series of nationwide hustings with party members.

Ben Houchen, the Tory mayor of Tees Valley who is backing Sunak, said earlier that the idea of lower pay for public sector workers in regions such as the north and Midlands left him almost “speechless”.

Angela Rayner, deputy Labour party leader, said Truss’s proposal would “level down the pay of northerners”, adding: “This out-of-touch government’s commitment to levelling up is dead.”

But after a morning of growing alarm from Truss’s supporters, particularly those living outside of London and the south east, the foreign secretary opted to abruptly scrap the policy just after midday to limit the damage.

Truss, a free market Tory, had argued that public sector pay should be set according to local living costs. She said this would stop the “crowding out” of the private sector, which could not afford to match state salaries.

The policy, part of a wider “war on Whitehall waste”, was inspired by the rightwing TaxPayers’ Alliance think-tank.

Truss announced on Tuesday that she wanted to introduce regional pay boards to set pay for civil servants. Her team claimed that the initiative could save £8.8bn if extended beyond the civil service to all public sector workers.

But Sunak said to secure the £8.8bn in savings Truss would have to cut the pay of nurses, police officers and the armed forces by an average of £1,500.

That figure was arrived at by dividing the £8.8bn of savings identified by Truss by the 5.7mn public sector workers. “The plan is a gift to the Labour party,” a Sunak spokesperson said.

A Truss campaign spokesperson claimed that the proposal for regional pay settlements had been “wilfully misrepresented”, but added: “Current levels of public sector pay will absolutely be maintained.

“Our hard-working frontline staff are the bed rock of society and there will be no proposal taken forward on regional pay boards for civil servants or public sector workers.”

The row has exposed the potential political fallout should Truss become prime minister and start to implement some of her rightwing policies to shrink the state, particularly in “red wall” seats in the north.

One ally of Sunak said it was unclear whether Truss’s team were “not very good at maths, or hate nurses”.

The Labour party called the policies “a race to the bottom on public sector workers’ pay and rights”.