Aren't these the same in a free market?
No - They are quite different.
They may currently pay you £20,000. But they may be willing to pay you £25,000 rather than you leave the company. This means that you are worth £25,000 but only get paid £20,000.
They won't offer up that £5k freely and it is in their interest to conceal the fact that they are willing to pay this extra £5k. One way to conceal this is to prevent the person they are paying the £25,000 from telling the person they aren't.
The justification for concealing pay levels being that it generates resentment is false logic. Correlation doesn't equal causation. Paying people less than they are worth is both the root cause of resentment and the root cause of the want to conceal pay levels.
Far sighted businesses recognise this, pay people what they are justifiably worth and therefore don't need to conceal salaries and don't generate resentment.
This doesn't need to mean that everyone gets paid the same, just that the company needs to be able to justify why the pay levels are different.
In your senario do the people hired earlier on the higher wage still get an anual pay rise? If so how can the company justify paying them more when it would cost less for them to leave and new people to join at a lower wage?
Maybe it's becuase they are worth what they get paid. If so then you would expect the new people to quickly rise to that pay as they aquired the expirience rather than be kept on a lower wage. Unless their performance doesn't warrant the higher wage, then you would expect the performance management process to reflect that lower value performance so the employee is aware of why he isn't worth as much.
If it's becuase the company values loyalty and therefore sees that people are being paid over the odds but accepts this is the price of being loyal then that is OK. It's justifiable. As a newer join on a lower wage I would rather work for a company that valued loyalty over one that didn't. I'm going to get paid the same either way since I'm getting the going rate for a new join in my industry.
But all of this requires openness. Something organisations are scared of.