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08 November 2010

General outlook for pay weak despite recent better deals

The forthcoming pay round will see employees struggle to make up lost ground following an extremely tough bargaining climate in 2009-10, according to comprehensive pay analysis by the Labour Research Department (LRD).

Recently announced inflation-beating deals at Jaguar Land Rover (5%) and South West Trains (5.2%) give rise to optimism for 2010-11 pay settlements in some sectors, but other indications are far less rosy. In particular the huge public expenditure cuts, plus government pay freeze policy and moves to undermine pay bargaining arrangements in agriculture, schools and health, do not bode well for post-recession settlements in general.

Lewis Emery, LRD's pay and conditions researcher, said: "In these conditions, the labour market could easily become divided between those able to push for a pay deal at least close to the level of inflation and the rest, where job security and minimum standards become the over-riding priorities."

In any case most employees have lost out significantly against the rising cost of living. The LRD'sannual pay round survey, based on over 700 collective agreements, shows that the median pay rise across the board in 2009-10 was 2.0% - lower than in 2008-09 and lagging behind well inflation.

Only a minority of settlements kept up with inflation, which peaked at 5.3% (RPI) in April 2010 and did not fall dramatically after that point. These were mostly the result of pre-existing long-term deals with a built-in inflation link. The median pay rise for these deals was 3.5%, but this type of arrangement only accounted for one in 12 settlements. Overall, 70 to 80 per cent of deals lost ground against the prevailing rate of inflation.

Pay freezes accounted for a smaller proportion of settlements than in the previous year, although they still constituted one in six deals and many workers suffered a second year with no pay rise.

And freezes actually affected a higher proportion of employees in the survey than in the previous year - with more than one in four workers hit - as larger agreements were involved. As well as the huge local government agreement, which directly covers 1.4 million workers but also affects other groups, pay was frozen in a number of multi-employer agreements in the private sector, notably that for the construction industry covering 600,000 workers.

The prospects for the forthcoming pay round look extremely challenging. Although the LRD-recorded median pay rise in the August-to-October period rose to 2.55%, and there are fewer private sector pay freezes, this is still well below inflation and may not be sustained.

Notes for editors:
  1. The LRD Pay Survey includes analysis of the 2009-10 pay round, expected deals for the year ahead together with details of over 700 pay settlements.

  2. The survey is based on the LRD's Payline database of over
    2,300 collective agreements with information on pay, terms and conditions and other aspects of the employment contract.

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