For the last three and a half years pay settlements in the
At the same time the Government's preferred price index meanwhile - the Consumer Prices Index - shows prices rising at 2.4%. It's lowest point was 1.1% back in September 2004.
So far increasing inflation hasn't fed through into recorded pay settlements. Indeed, according to Income Data Services around half the settlements recorded so far in 2006 were below those recorded in 2005.
But rising inflation does mean that the background facing those determining pay increases in 2007 is more complicated. History suggests that pay does not usually lag behind inflation for long. Rising interest rates and a still generally tight labour market will encourage employees to expect more. Difficulties in passing on increased costs will discourage employers from offering more - and the Government's stated stance on public sector pay (increases will be small) will encourage efforts to keep increases to a minimum.
So all is set for more challenging discussions in 2007. Our expectation is that pay settlements in 'going concern' organisations will edge up. Budgets for pay rises that were set this year between 3% - 4% are more likely to be in the range 3.5% - 4.5% next year. But as so much depends on the detail - for example organisational performance, recruitment hot spots, relation to the minimum wage, the impact of energy costs, and the perceived ability to pass on cost increases
- that there will be an increased emphasis on checking what is happening and preparing for pay discussions. What is certain is that the assumption of the last 3 years - it will be a 3% increase - will be challenged.
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November 2006
