It makes perfect sense. Just as you get more tax from rich people by reducing their tax rates, so you make poor regions better off by reducing the amount of money flowing into them. There's a wonderful symmetry to it.
This is being applied to a small selection of workers to begin with, but will presumably be rolled out to the whole public sector in due course. I wonder how those MPs who represent constituencies in poorer regions will feel when they get paid less than MPs from the south-east? (Because, of course, MPs would never force such a sacrifice onto other public sector workers and then refuse to adopt it themselves.) Osborne would be one of the losers, having a constituency in the north-west, though in his case the £4,000,000 trust fund he got from daddy may help soften the blow.