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27 October 2008

Public/private sector divide in settlements as inflation begins to affect pay

The 2007-08 pay round can be described as one rule for the private sector, another for the public sector. The private sector is starting to show the marked impact of inflationary pressures, while the cap on public sector pay is keeping a lid on economy-wide figures.

Private sector negotiators achieved rises of almost 45% more than those in the public sector, with the mid point (median) of deals in the private sector reaching 4% while in the public sector the figure stood at 3%, and when weighted by numbers of employees, was only 2.75%. This strongly reflects the NHS Agenda For Change settlement (also 2.75%) covering 1.2 million staff. The upper quartile of employees in the private sector (top 25%) received rises of 6% or more*.

The findings come from the latest annual Payline survey of pay deals based on Labour Research Department's database and reflect almost 800 agreements negotiated between employers and unions in the UK, covering around 6.3 million employees nationwide. The full survey is published in the October issue of Workplace Report.

Moreover, against a background of the rising cost of living, the survey shows negotiators across the board have sought additional pay and non-pay elements such as leave and flexibility, allowances and bonuses, to add value to overall pay deals. Also noticeable is a minority trend for 'fairness' in pay, with underpinning payments for the lowest paid; and for moves against bargaining fragmentation in particular industries including the civil service and transport sectors.

Specific findings include:

  • Economy-wide median pay settlement of 3.9% (up from 3.6% in 2006-7 and 3.3% in 2005-6)
  • Average (mean) pay settlement economy-wide of 3.84% (from 3.82% in 2007). The mean weighted by number of employees is 3.59% (up from 3.28% in 2007).
  • Average pay settlement across 2.6m private sector employees: 4.29% (median 4%)
  • Average pay settlement across 3.1m public sector employees: 2.99% (median 2.75%)
  • Highest sectoral median (energy, water, mining, and nuclear) 4.3% (4.6% weighted by employees) followed by construction at 4.2% (6% weighted).
  • Lowest sectoral medians were public administration (2.5%, weighted and unweighted), education (3%, 2.5% weighted) and health (3%, 2.75% weighted) followed by hotels, catering, retail, wholesale (3.2%, weighted and unweighted).
The figures represent only headline pay settlements and do not include increments, bonuses or overtime.

Lewis Emery, who conducted the survey at LRD, commented: "Public sector pay caps have so far kept overall pay rise figures dampened down. But deals in the private sector show inflation has clearly pushed up settlements, with unions doing what they can to protect members' living standards."

Long-term deals staged over more than one year (38% of the entire sample of 765) give the clearest indicator of the effects of inflation. A significant minority of these (13% of the total sample) are existing deals linked to inflation, and these delivered rises of 4.5% at the mid-point compared to long-term deals with no inflation link and one year or short-term deals, both of which delivered 3.5% at the mid-point (median). New long-term deals this year delivered 4.1%.

According to Emery:"A not insignificant number of long-term deals linked to inflation show a clear trend, setting the pace with the highest settlement levels overall. With the number of new long-term deals holding steady these could provide a calm centre in a turbulent economy. Despite the effect of inflationary upward pressures, the 2007-08 pay round could prove to be a model of stability in comparison with the year to come."

For further information about the Payline pay round survey, LRD or Workplace Report or to receive a media copy of the survey and supplement, contact 020 7902 9819 or

Notes for Editors

  • The full article appears in the October special issue of Workplace Report, with a full summary of pay deals agreement by agreement as a special supplement. Workplace Report is LRD's monthly publication for union reps and negotiators.
  • Labour Research Department is an independent organisation founded in 1912 to produce research on behalf of trade unions and the labour movement. More than 1,800 trade union organisations, including 55 national unions, are affiliated to it, representing more than 99% of TUC membership. LRD press releases are also available on the website at www.lrd.org.uk
  • Payline is LRD's database of negotiated agreements reported to LRD by unions. It includes around 2,000 agreements with information on pay, terms and conditions and other aspects of the employment contract. The pay round survey is conducted bi-annually in April and October.
  • Unweighted figures represent means and medians calculated across numbers of agreements, out of a total of 765 represented in this survey. Weighted figures are calculated by number of employees (estimated at around 6.3 million) covered by the agreements. Pay settlements are negotiated rises on basic pay, and exclude bonus, increment, overtime and other allowances.
*On the weighted figures, private sector workers received almost half as much again as public sector workers on basic pay. The 6% upper quartile figure for the private sector represents only 4% of agreements.


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