ECONOMIC DATA FOR PAY CLAIMS
Introduction
This document is intended to provide the latest economic data 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 email
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.
In addition to the economic data, the appendices at the back of this report provide advice to branches on drawing up claims and the wording of a basic model claim for insertion of local and up-to-date information. If you have any comments on how this material can be improved, please contact the Bargaining Support Group though the email address above.
Document contents
1 Cost of living
1.1 Historical inflation rates
1.2 Forecast inflation 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 by occupation
3.2 Earnings comparisons by region
3.3 Earnings of low-paid staff
3.4 Earnings of high income groups
4. Labour Market
5. Other norms for negotiations
Appendix 1 – Advice on drawing up a pay claim
Appendix 2 – Model format for pay claim
Appendix 3 – Quick reference stats for pay bargaining
1. Cost of living
1.1 Historical inflation 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 has been running between 2.5% and 3.5% over most over the last two years, but has gone into sharp decline over recent months. The latest inflation figures put RPI at 1.6% and CPI at 0.5%. [The reasons why RPI is the more relevant reference point for pay bargaining are outlined in section 1.5]
Source: Office for National Statistics website at www.ons.gov.uk
Between 2010 and 2014, the cost of living, as measured by the Retail Price Index, rose by a total of 19.8%.
1.2 Forecast inflation rates
The Treasury average of independent forecasts predicts that RPI inflation will rise by 2.4% in 2015 and then accelerate to over 3% a year between 2016 and 2018. The medium term forecast put the expected rates at the following levels.
Year / RPI forecast2015 / 2.4
2016 / 3.2
2017 / 3.4
2018 / 3.2
Source: HM Treasury Forecasts for the UK Economy at http://www.hm-treasury.gov.uk/data_forecasts_index.htm
If these rates turn out to be correct, the cost of living employees face will have grown by almost 13% by the close of 2018, following the pattern set out in the graph below.
1.3 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 http://www.neighbourhood.statistics.gov.uk/HTMLDocs/dvc14/index.html
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.
The most recent data from the Annual Survey of Hours and Earnings suggests that the real value of average UK pay packets has fallen by 12% since 2010, with employees losing over £2,000 a year from the value of their pay packet since the government came to office. The average worker would have accumulated more than £13,000 more had their wage kept pace with inflation.
For the public sector worker who has not benefited from any incremental progression in their pay, the decline has been even sharper. Between 2010 and 2014, the public sector worker on the median wage saw a 14% cut in the real value of their earnings, leaving their 2014 wage £4,800 down on the value of their earnings at the start of 2010 and the accumulated loss from their wage failing to keep pace with inflation each year stood at over £16,000.
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. 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 and arguments for countering any employer attempts to move away from RPI as the key reference point for pay bargaining, click here
UNISON commissioned research that provides a very full critique of CPI and the main arguments summarised in that research can be accessed by clicking here
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.
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]
1.7 Inflation components
The changes in the price of components of the Retail Price Index over the year to December 2014 are shown in the table below.
Item / Average % increase to December 2014Personal expenditure / 4.0
Alcohol and tobacco / 3.9
Consumer durables / 3.3
Housing and household expenditure / 2.5
Mortgage interest payments and council tax / 1.7
Travel and leisure / -0.3
Food and catering / -0.4
All goods / 0.3
All services / 2.0
All items / 1.6
Source: Office for National Statistics, Consumer Price Inflation Reference Tables, December 2014. Latest figures can be obtained from the Office of National Statistics website at www.ons.gov.uk
One of the main reasons for the drop in the inflation rate was declines in electricity and gas prices after years of strong growth. However, a 6.4% acceleration in prices for clothing and footwear, along with a 3.9% rise in rail fares and 2.9% rise in rents were the most signififant aspects of inflation that bucked teh general trend.
The price of housing also remains one of the biggest issues facing employees and their families. Across the UK, house prices rose by 10% in the year to November 2014, taking the average house price to £271,000[5]. First time buyers bore the brunt of increases, seeing average prices jump 11%. However, the picture varied markedly across the nations of the UK, with England experiencing by far the biggest increase at 10.4%, followed by Northern Ireland at 11.7%, Scotland at 4.4% and Wales at 3.1% (to see price changes in English regions, click here ). The ratio of average house prices to average earnings grew in every country of the UK between 2012 and 2013 except Scotland. The ratio stands at 11.8 in England (14 in London), 8.7 in Wales, 8.4 in Scotland and 7.1 in Northern Ireland[6].
The rate of increase in rents has been more modest at 3%, but average rents have nonetheless hit £767 a month[7]. However, new tenancy rates have been increasing much more rapidly and more in line with the mortgage market. New rents across the UK grew at 7.6% in the year to December 2014[8], reaching £867 per month. For a regional breakdown on rental price inflation click here
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 Family & Childcare Trust survey[9] for 2014 found that average childcare costs have risen by 27% over the last five years. The average cost of sending a child under two to nursery part-time is now £5,710 per year and a family with two children in full-time childcare pays £11,700 a year.
Current inflation rates can mask longer term changes in the cost of living that have taken place since 2010. For instance, food price inflation is currently quite low, but since 2010 it has seen major rises, as reflected in the table below.
Item / Rise in cost since 2010 / Item / Rise in cost since 2010 / Item / Rise in cost since 2010Food / 13% / Potatoes / 22% / Electricity / 28%
Beef / 26% / Fruit / 12% / Gas / 38%
Fish / 20% / Rent / 11% / Petrol / 12%
Butter / 29% / Mortgage interest payments / 8% / Rail fares / 21%
Cheese / 15% / Water / 18%
2. Pay settlements
Pay settlements across the economy have been running at around the 2% mark over most of the last year. This level of settlements is well below the long-run median of between 3% and 3.5%.
Source: Industrial Relation Service - www.xperthr.co.uk
Since April 2010, a huge gap has opened up between private and public sector settlements. Limited by the pay cap, average public sector pay settlements ran at 1% through almost all of 2013 and well into 2014 until edging up over recent months. Over the last two months, settlements have risen to 1.5%, but this was largely due to a quirk in the XpertHR system for measuring settlements, which is biased toward the lowest wage rates and since a number of public sector deals have included higher increases for staff on lower wages the XpertHR figures show a larger increase than has been experienced by most public sector staff. Incomes Data Services continues to show average public sector pay settlements running at 1%, in line with the pay cap set to run until 2016 and almost half the 2% rate prevalent in the private sector.
Source: Industrial Relation Service - www.xperthr.co.uk
The gap between the public and private sector is predicted to remain over the coming year, with private sector employers expecting settlements of 2% over the year to August 2015[10].
A summary of 2014 pay rises among some of UNISON’s largest bargaining groups is shown below:
Bargaining Group / 2014 pay risesLocal Government Services NJC (England, Wales & Northern Ireland) / BASIC: 2.2% from Jan 15 for staff above SCPs 10 and non-consolidated payments ranging £325 to £100 EXCEPTION: Rises ranging from 8.56% to 2.32% for SCPs 5-10
Scottish Joint Council for Local Government Employees / 1%
Health - Agenda for Change staff / ENGLAND BASIC: 0% EXCEPTION: 1% non-consolidated for staff at top pay point in their pay band
(Members remain in dispute over this offer) / SCOTLAND BASIC: 1% EXCEPTION: £300 staff addition for staff on basic pay below £21,000 and living wage as bottom point / WALES BASIC: £187 non consolidated EXCEPTION: Living wage as bottom point
Further Education (England) / BASIC: 1% EXCEPTION: Bottom point raised to living wage
Higher Education / BASIC: 2% EXCEPTION: Lowest pay point raised to Living Wage for staff on 35 hour week
Sixth Form Colleges (England) / 1% increase and deletion of bottom two points on the scales
For a fuller list of pay settlements, that includes other areas of the public sector, community / voluntary organisations, water, environment, transport and energy companies, as well as other major private sector organsiations, click on this link - latest pay settlements