Why couldn't it work? I think it completely makes sense that you'd have different levels of minimum wage based on the cost of living etc.
I know this is about the UK, but for example here in the US:
-Federal Minimum: $7.25/hr
-California Minimum: $9.00/hr
-San Francisco Min: $11.05/hr
None of these are living wages mind you...
Don't think it would work in the UK.
Would you put the same wage limit on everybody working in London, or just those who lived within the city, for example ?