Demand is greater than supply in London, which is a big issue. It turns people towards high salary bidding wars, which to be honest offsets the saving.
I haven't noticed a huge shortage of Ruby on Rails devs in London, and the average salaries don't reflect a major shortage either. According to itjobswatch.co.uk, the average Ruby salary is the same as the average Java salary in London.
I also thought the idea of hiring cheap, sub-par developers as a way of saving costs was somewhat discredited by now.
When I interviewed with the GOV.UK people in January it turned out that the seemingly good salary they were offering was actually about the same as I'm currently paid up here in Leeds. However, the pension element of the compensation was relatively generous.
If you've lived in London for a number of years, you'll realise you need real cash up front to survive here as the transport and accomodation costs are sky high.
My rent for the 3 bed terraced house in South West London I moved into on Saturday could get me a 7 bedroom mansion with several acres of ground near Leeds...