GENERIC ECONOMIC MATERIAL TO SUPPORT PAY CLAIMS

Transcription

1 Introduction GENERIC ECONOMIC MATERIAL TO SUPPORT PAY CLAIMS This document is intended to provide generic economic material to assist in the development of pay claim documents. It covers the main economic themes that tend to shape pay claims, from inflation and its impact on wages to comparisons against prevailing pay settlements and average earnings trends. The document is accompanied by a spreadsheet so that the source data used to generate the graphs below can be adapted for the circumstances of individual pay claims. Bargaining Support Group can also make available a set of core questions for any pay survey that may be conducted in support of the claim. To obtain a copy, please bsg@unison.co.uk For the great majority of public service staff, pay claims or evidence to pay review bodies are still handled at a national or UK level. However, it is becoming increasingly common for organisations delivering public services to stand outside of this framework and this material may be of particular value for development of pay claims for members in these circumstances. If you have any comments on how this material can be improved, please contact the Bargaining Support Group though the address above. Document contents 1 Inflation 1.1 Historical rates 1.2 Forecast rates 1.3 Inflation case studies 1.4 Impact of inflation 1.5 Reason for comparing wages to RPI 1.6 Inflation for staff on low pay 1.7 Inflation components 2. Pay settlements 3. Average Earnings 3.1 Earnings comparisons 3.2 Earnings of low-paid staff 3.3 Earnings of directors 4. Labour Market 5. Other norms for negotiations

2 1. Inflation 1.1 Historical rates The graph below allows for plotting of an organisation s pay awards against the Consumer Price index (CPI) and Retail Price Index (RPI) over the last three years. RPI inflation ran above 5% through almost the entirety of It subsequently went through a decline but since mid 2012 has stabilised around the 3% mark. Consequently, the huge gap between public sector pay awards and the rate of increase in the cost of living that opened up during 2010 has been sustained. The latest inflation figures put RPI at 2.8% and CPI at 1.9%. The statistics for updating this graph can be found on the Office of National Statistics website at and can then be fed into the inflation table in the attached spreadsheet.

3 1.2 Forecast rates The Treasury average of independent forecasts places RPI inflation in the region of 3% right up until The medium term forecast put the expected rates at the following levels. Year RPI forecast Cumulative increase in cost of living If these rates turn out to be correct, the cost of living employees face will have grown by 16.5% by the close of 2018, as reflected by the graph below showing the cumulative impact of inflation forecasts. For the latest update to these figures see the HM Treasury Forecasts for the UK Economy at Inflation Case Studies The Office of National Statistics provides a tool entitled the Personal Inflation Calculator (PIC), which enables a sample of case studies to be developed as part of a pay claim. Members can be asked to provide the details that are fed in to the calculator at

4 A graph showing the individual s personal inflation rate against the national average can then be developed (the input and output screens from the PIC are shown below). To view the PIC web page, you will need an SVG-enabled web browser. 1.4 Impact of inflation Illustrations of the impact of inflation on wages can be shown through the type of graph shown below, with actual salary tracked against the salary that would have been payable if it had risen with inflation, which providers an indicator of the value stripped out of wages by the impact of inflation. The table for deriving examples appropriate to your organisation by entering actual salary and pay award data can be found on the impact of inflation tab in the attached spreadsheet.

5 Across the economy, the TUC estimates that the average effect of inflation on wages across the economy since 2008 is that real wages have fallen by 7%. 1.5 Reason for comparing wages to RPI UNISON believes that the Retail Price Index (RPI) measure of inflation represents the best measure of changes in prices faced by employees, as it includes the housing costs that form a significant part of most employee s expenditure, data collection is tied more tightly to working households than the Consumer Price Index (CPI). However, CPI also utilises a statistical method called the geometric mean, which is based on the idea that consumers switch to cheaper products when faced with price rises. UNISON does not believe that this is an appropriate method for calculating inflation and results in a consistent under-estimation of the real inflation in the cost of living faced by members. Therefore, UNISON supports the use of RPI, which remains the most widely used basis for pay negotiations across the public and private sector 1. For a more complete explanation of inflation indicators, see the factsheet at Inflation Indicators.pdf 1.6 Inflation for staff on low pay The Croner Reward cost of living survey 2 provides a rare indicator of the impact of inflation on differing income groups as it analyses the required income to maintain a family s existing standard across eight income groups. The 2010 and 2011 reports showed that the lowest income group experienced bigger percentage rises in required income than any other income group at 6% and 6.6% respectively, though this tendency was arrested in 2012, when the lowest income groups saw their required income growth drop below the average to 5.2%. However, long term studies of the impact of inflation on different income groups still suggest that low income groups suffer disproportinately. For example, the Institute of Fiscal Studies published a report 3 in 2011 which found that the greater tendency of low income households to spend a higher proportion of their income on fuel and water meant that, on average, lower income households had higher inflation rates than higher-income households. Over the 10 year period studied, the group within the second lowest income decile experienced a 41% increase in prices while the highest income decile experienced a 33% increase. The study also went on to note that this differential is likely to continue given the forecasts from the Department of Energy and Climate Change that point to price increases in domestic fuel above that of general inflation over the short term. 1 Incomes Date Services, RPI still dominant, November Croner Reward, Cost of Living Regional Comparisons, September Peter Levell and Zoe Oldfield, The spending patterns and inflation experience of low-income households over the past decade, Institute of Fiscal Studies, June 2011

6 This analysis was bolstered in 2014 when the Institute of Fiscal Studies published a study which found that, between 2008 and 2013, the lowest income fifth of households had faced average annual inflation that was 1% higher than the highest income fifth. 4 4 Institute of Fiscal Studies, IFS Green Budget 2014

7 1.7 Inflation components The changes in the price of components of the Retail Price Index over the year to January 2014 are shown in the table below. Item Average % increase to January 2014 Personal expenditure 6.0 Consumer durables 4.8 Alcohol and tobacco 4.0 Mortgage interest payments and council taxes 3.2 Housing and household expenditure 2.8 Food and catering 2.2 Travel and leisure 1.4 All goods 2.4 All services 3.1 All items 2.8 Source: Office for National Statistics, Consumer Price Inflation Reference Tables, December Latest figures can be obtained from the Office of National Statistics website at Within these figures, household utility bills saw some of the highest rises, with gas prices up by 6.7%, electricity by 8.0% and water by 4.5%. The graph produced by the BBC below shows the dramatic upward trends across the major six suppliers over the last three years.

8 In addition, housing costs have accelerated sharply in both the mortgage and rental scetors. Rent hit a record high in October 2013, reaching over 9,000 a year in England and Wales, just as house prices climbed 8.8% to January 2014, leaving the average cost of a home at 176, The Halifax predicts that house prices will continue to rise at a similar rate over Though not specifically assessed by CPI or RPI figures, childcare costs represent a key area of expenditure for many staff (UNISON surveys have consistently found that around a third of staff have child caring responsibilities).therefore, it is also worth noting that the annual Daycare Trust survey 6 for 2013 found that nursery, childminder and after-school club costs all rose at over 6% in The average full-time nursery place for a child under two now stands at 11,000 a year, while average childminder costs are now in the region of 97 a week. 5 Nationwide Building Society 6 Daycare Trust & Family and Parenting Institute, Childcare Costs Survey 2013, February 2013

9 2. Pay settlements After nine months running at 2%, median pay settlements across the UK economy rose in January 2014 to 2.4%. Source: Industrial Relation Service - The scale of the disparity in pay settlement growth between the public and private sectors is shown by the graph below. In April 2010 public and private growth was equal at 1%, but public and private settlements then began moving in opposite direction and by mid 2011 the public rate had dropped to zero while the private rate was heading toward 2.5%. This position was maintained right through 2012 and though the gap has narrowed slightly in 2013, private sector pay settlements are still double those of the public sector 7. Source: Industrial Relation Service - This deterioration in the competitive position of public sector pay rates is likely to continue given forecasts of private sector pay settlements that predict the private sector rate will grow at 2.5% over the year to August IDS estimated that pay awards in not-for-profit organisations were running at 2% in the three months to June XpertHR, Pay trends January 2014

10 In the not-for-profit sector, average pay awards among charities stood at 1% over the year to August 2013 and among housing associations the average was 2%. 9 9 XpertHR Annual review of pay trends 2013

11 3. Average earnings The graph below shows trends in average earnings growth over the last two years. Prior to September 2012, private sector average earnings had been growing at or above the rate of public sector earnings for all but two months. For a period of seven months from September 2012, public sector growth then ran ahead of the private sector. However, this was been almost entirely driven by the decision in June 2012 to reallocate employees of English further education and sixth form college corporations from the public to the private sector. Official estimates of the impact on earnings growth suggest that, if this adjustment had not been made, the public sector would have continued to lag private sector earnings growth for the great majority of the period. Despite these changes, private sector earnings growth surged back ahead of the public sector in April 2013 and maintained its lead for the remainder of the year. Private sector average earnings growth now stands at 1.5%, compared to 0.2% in the public sector, Source: Office of National Statistics, Labour Market Statistics, January 2014 Forecasts of average earnings predict that average earnings growth will rise to 2.2% over 2014 and 2.9% in For the latest update to these figures see the HM Treasury Forecasts for the UK Economy at Average earnings growth is sometimes used as a basis to argue that the public sector continues to see improvements in pay that are not matched by the private sector and particularly as a basis for attacking pay progression. The flaw in these arguments, aside from the simple distortion of staff allocation noted above, is that the use of average earnings growth for comparisons does not simply reflect changes due to pay settlements and pay progression.

12 Changes in the average are affected by a multitude of factors that affect the composition of the public and private workforce. Any changes that swell the lower paid end of the workforce and/or reduce the proportion of higher paid employees, such as differences between the sectors in recruiting staff on part time or zero hours contracts, or redundancies that hit the most recent recruits hardest, will act as a downward pressure on the average. The government s drive toward greater outsourcing in itself tends to lower private sector average earnings growth and raise public sector growth because of the marked tendency for outsourcing to focus on lower paid sections of the workforce. Therefore, average earnings growth does not offer any kind of sound basis for judging actual changes in the pay packet of a worker in the public or private sector. Pay settlement data forms a much sounder basis for comparison as it eradicates the differences in workforce composition that affects average earnings growth comparisons. However, it is easy to see from the graph above why the government and employers are less keen to make comparisons on this basis, as private sector pay settlements have averaged 2% for most of the last year, against the public sector average of 1%. An alternative picture is provided by the VocaLink Take Home Pay Index. It records the average take home pay among the FTSE 350 companies (split into manufacturing and service sectors) as well as a sample of over 600 public sector organisations. The graph below suggests that the average level of take home pay among public sector staff shrunk over most of 2013 and when inflation is taken into account (even given that VocaLink use consumer price inflation, which is consistently lower than retail price inflation, as the basis for their calculation) take home pay shrunk by 1.2% in the year to January 2014.

13 * In deriving these figures, VocalLink deflated take home pay by CPI to July 2013 and then by CPIH subsequently 3.1 Earnings comparisons The Annual Survey of Hours and Earnings (ASHE) provides data that can form useful comparators for changes in average earnings among service group staff. The table below shows the change in median gross annual pay for full-time staff within the main job categories listed. A spreadsheet is attached containing the table and accompanying graph, which can be updated to show appropriate service group occupational changes in earnings against any useful comparator on the list. A listing of earnings growth for more specific jobs within these categories can be found on the Office of National Statistics website under Table 14 at provisional-results/2013-provisional-table-14.zip ASHE data on changes in median gross annual pay for full-time employees Job Type Annual % change 2012/13 All employees 2.1 Managers, directors and senior officials 2.7 Corporate managers and directors 2.8 Other managers and proprietors 2.5 Professional occupations 0.8 Science, research, engineering and technology professionals 1.8 Health professionals 0.7 Teaching and educational professionals 0.5 Business, media and public service professionals 1.5

14 Associate professional and technical occupations Science, engineering and technology associate professionals Health and social care associate professionals Protective service occupations Culture, media and sports occupations 1.0 Business and public service associate professionals 1.8 Administrative and secretarial occupations 1.8 Administrative occupations 1.7 Secretarial and related occupations 1.0 Skilled trades occupations 0.9 Skilled agricultural and related trades 0.1 Skilled metal, electrical and electronic trades 1.5 Skilled construction and building trades 0.1 Textiles, printing and other skilled trades 1.5 Caring, leisue and other occupations 0.7 Caring personal service occupations 0.2 Leisure, travel and related personal service occupations 1.1 Sales and customer service occupations 1.8 Sales occupations 1.6 Customer service occupations 1.9 Process, plant and machine operatives 2.1 Process, plant and machine operatives 0.2 Transport and mobile machine drivers and operatives 2.0 Elementary occupations 1.4 Elementary trades and related occupations 2.2 Elementary administration and service occupations Earnings of low paid staff A number of valuable wage benchmarks exist for comparing against the lower end of pay scales. The adult minimum wage currently stands at 6.31 an hour, while the living wage defined by the Living Wage Foundation/Citizens UK was raised to 7.65 an hour in 2013 and the Greater London Authority put the living wage in the capital at The Joseph Rowntree Foundation also calculates a Minimum Income Standard, which is based on what members of the public think people need to achieve a socially acceptable standard of living. In 2013, that standard stood at 16,850 for a single person and 19,400 for a couple with two children, both working full-time 10. These minimums rose by 4.2% and 10 Joseph Rowntree Foundation, A Minimum Income Standard for the UK in 2013, July 2013

15 3.7% respectively on the 2012 rates, well above the average pay settlements in both the public and private sector. 3.3 Earnings of directors You may be able to collect specific data on earnings increases received by such figures as chief executives in your organisation. For pay claims within private companies, any company of a certain size has to disclose the remuneration of its board within the annual accounts (please contact Bargaining Support on bsg@unison.co.uk if you are unable to obtain a copy of a company s accounts). It may be worth pointing out the general background set by the pay of FTSE 100 directors in shaping staff perceptions of fairness in pay awards and influencing workforce morale. Incomes Data Services found that average pay increases for FTSE 100 directors rose by 40% in (following a 27% increase in 2012). The average remuneration package for FTSE 100 chief executives was worth 4.8m in 2011, which was 185 times the average workers salary 12. Chief executives saw their remuneration grow by 12% in 2011 alone, while across the economy average earnings were expanding by around 2%. The main factor in the more rapid growth of chief executive remuneration was down to long-term incentive plans, which enable them to draw massive personal gains from increases in share prices. The same pattern has been apparent in pension entitlements, with the latest TUC study 13 showing that the average FTSE 100 directors pension entitlement stands at 259,947 per annum, which is 25 times the average worker s pension of 10,452. In addition, while the normal pension retirement age has been pushed toward 65 across much of the economy, the most common normal retirement age for directors stands at 60. This continued the trend of the last decade, which has seen chief executive pay increase by about 500% while pay for ordinary workers pay has gone up by 20% before taking into account the effect of inflation. Similarly, shareholders received the largest-ever quarterly dividend pay-out from UK companies in the second quarter of Payments rose over 7.6% on the same period last year, hitting 25.3 billion. Over the course of 2013, total dividend payments are expected to hit 81.4bn, which is also a record high. However, 2014 is expected to be an even bigger bumper year, with 102bn being paid out in dividends. 11 IDS Directors Pay Report The High Pay Centre, The State of Pay, December TUC, PensionsWatch Capita, UK Dividend Monitor, July 2013

16 This pattern also continues the long term trend examined by the TUC 15, which found that the proportion of value produced by the economy going to wages dropped from 59% to 53% over the three decades to 2008, while the profit share grew from 25 to 29%. 15 TUC, Where Have All the Wages Gone?, H.Reed and J.M.Himmelweit

17 4. Labour Market Recruitment and vacancy rates With unemployment running at 2.5m in May 2013, the Chartered Institute of Personnel and Development (CIPD) exposed the scale of competition for vacancies when it reported that 45 applicants were chasing each job that it classified as low skilled, there were 29 for every medium skilled position and 10 for every highly skilled job. However, its annual survey 16 also revealed that though median vacancies still remain below pre-recession levels, both large private and public sector organisations had seen marked rises over 2011/12. It is asserted that in some parts of the public sector this rise has reflected a realisation that too many posts have been lost to fulfil the service. The costs to the employer of losing staff were highlighted in the finding that median recruitment cost for filling senior manager / director vacancies stood at 5,000 while other employees cost 2,000 to replace. The occupations for which organisations are experiencing particular difficulties in recruitment were highlighted in the table below. Occupation % respondents facing recruitment difficulties Managers and professionals / specialists 52 Technical 46 Senior managers / directors 29 Manual / craft 9 Services (customer, personal, protective and sales) 7 Admin & secretarial 3 Other 9 The reasons given for facing recruitment difficulties are summarised in the table below 16 CIPD and Hays, Resource and Talent Planning Annual Survey 2013, June 2013

18 A 2012 survey of public sector managers conducted by the Centre for Economics and Business Research and employment website totaljobs.com found that more than twothirds reported a lack of new talented staff was hitting efficiency in their organisation. The deteriorating position of pay, pensions and terms and conditions relative to the private sector led managers to observe that poor perception of the public sector was a "key barrier" to recruitment. The 2013 XpertHR labour turnover report recorded a rise in voluntary resignation rates across the economy to 10.6% in 2012, with private sector services hitting 12.2%, manufacturing and production 7% and the public sector 8.1%. The occupations recording the highest resignation rate were the voluntary sector (13.3%), higher education academic staff (6.7%) and housing sector staff (6.7%). Average turnover rate (which measures the proportion of employees who leave an organisation for any reason resignation, retirement, dismissal or redundancy) was 17% across the economy in The breakdown with sectors was 19.1% in private sector services, 12.6% in manufacturing & production and 13.9% in the public sector.

19 5. Other norms for negotiations The following factsheets include sections on prevailing norms in the economy for various other aspects of pay, terms and conditions that may be useful as part of pay claims. London Allowances Factsheet Pay settlements over last six months Sick pay norms Standby and call-out payment norms Norms for hours and annual leave