PAY SETTLEMENTS AND AVERAGE EARNINGS

This outline of pay settlements and average earnings provides a picture of trends across the economy and comparisons between the public and private sectors. It goes on to look at the specific trends for major occupations, differing rates across the countries of the UK / English regions, and draws comparisons for the low and high-paid. Finally, it provides a round-up of average pay settlements by sector.

  1. Pay settlement trends across economy

Pay settlements across the economy have been running at between 2% and 2.5% over most of the last year. This level of settlements is well below the long-run median of between 3% and 3.5%.

Source:Labour Research Department, settlement sover year to July 2015

Since April 2010, a huge gap has opened up between private and public sector settlements. While the public sector has experienced a pay freeze followed by a 1% pay cap, average private sector settlements have frequently been running at 2.5%. However, major public sector deals such as the 2.2% increase for NJC local government staff in January 2015 have now raisedthe average recorded across the public sector to 1.7%.

Private sector rates are predicted to return torates double that of the public sector over the coming year, with private sector employers expecting settlements of 2% over 2015[1] while public sector rates are forcast at 1% to March 2016 and voluntary sector rates are forecast to average 1.4%[2].

2. Average earningstrends across economy

The graph below shows trends in average earnings growth over the last two years. Since April 2013, private sector earnings growth has been running ahead of the public sector every month except two. Over recent months, the private sector rate has accelerated sharply while the public sector rate has flattened out. In June 2015, the rate across the economy was 3.2%, private sector growth was 3.8% and average public sector wages rose by 0.4%.

Source: Office of National Statistics, Labour Market Statistics, May 2015

Forecasts of average earnings predict that growth will stand at 3.6% by 2016, 3.9% over 2017 and 2018, 4.1% in 2019 and 4.4% in 2020, as set out in the graph below[3].

Note on difference between pay settlements and average earnings
Before public sector average earnings growth dropped well below the private sector rate in 2013, average earnings were often 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 forcomparisons does not simply reflect changes due to pay settlements and pay progression.
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 on average been running at double the public sector rate over the last year.

3. Earnings growth by occupation

The Annual Survey of Hours and Earnings (ASHE) provides data that can form useful comparators for changes in average earnings experienced by UNISON members. The table below shows the change in median gross annual pay for full-time staff within the main job categories listed. A listing of earnings growth for more specific jobs within these categories can be found on the Office of National Statistics website by clicking here

ASHE data on changes in median gross annual pay for full-time employees
Job Type / Annual % change 2013/14
All employees / 0.1
Managers, directors and senior officials / 0.7
Corporate managers and directors / 2.0
Other managers and proprietors / 2.5
Professional occupations / 1.1
Science, research, engineering and technology professionals / 0.3
Health professionals / -0.3
Teaching and educational professionals / 1.0
Business, media and public service professionals / 1.8
Associate professional and technical occupations / 0.2
Science, engineering and technology associate professionals / 1.0
Health and social care associate professionals / -0.6
Protective service occupations / -0.7
Culture, media and sports occupations / 1.4
Business and public service associate professionals / 0.7
Administrative and secretarial occupations / 1.8
Administrative occupations / 2.1
Secretarial and related occupations / 2.1
Skilled trades occupations / 0.9
Skilled metal, electrical and electronic trades / 0.8
Skilled construction and building trades / 2.5
Textiles, printing and other skilled trades / 0.5
Caring, leisure and other occupations / -0.6
Caring personal service occupations / 0.2
Leisure, travel and related personal service occupations / -2.7
Sales and customer service occupations / 0.8
Sales occupations / 1.5
Customer service occupations / -0.1

4. Earnings growth by region

The Annual Survey of Hours Earnings provides a breakdown of earnings growth right down to the level of parliamentary constituency.

The full set of tables for workers within a region and constituency can be found at

The full-time gross pay set out in table 9.7 will frequently provide the most common basis for comparison with UK rates or specific groups of UNISON members.

An interactive map summarising median earning levels across the UK’s local authorities is made available by the Office of National Statistics at

(Please note that this map does not function on older browsers)

The Equality Trust has also produced a summary of regional pay levels in the report set out at

Data on the proportion of employees paid below the living wage is also available by parliamentary constituency at

For England, a table setting out the cost of housing relative to wages by local authority district is available at

5. Earnings of low-paid staff

The adult minimum wage rose to £6.50 an hour on 1 October 2014, while the “living wage” defined by the Living Wage Foundation/Citizens UK was raised to £7.85 an hour in 2014 and the Greater London Authority put the living wage in the capital at £9.15.

The Living Wage has become a standard benchmark for the minimum needed for low-paid staff to have a “basic but acceptable” standard of living.

There are now in excess of 1,300 employers accredited as living wage employers by the Living Wage Foundation, including some of the UK’s largest private companies, such as Barclays and HSBC.

Across public services, the living wage has been achieved in the following areas:

  • The Scotland government has established the living wage within all its public sector organisations,
  • Minimum rates have been raised to the living wage in the most recent pay settlements for
  • Wales NHS
  • England Further Education Colleges
  • Higher Education.
  • Living wage framework agreements have been established for support staff in more than 12,000 schools across the UK
  • In England and Wales, the minimum pay rate for police staff has been set above the living wage in the most recent pay settlement

Outside of the UNISON sectors where the bottom rate has been set at or above the living wage, the lowest pay points are as below.

UNISON bargaining groups / Settlement date / Annual pay / Hourly rate*
Local government (England, Wales & Northern Ireland) / 01/01/2015 / £13500 / £7.00
NHS Agenda for Change (England) / 01/04/2015 / £15100 / £7.72
Sixth form college support staff (England & Wales) / 01/09/2014 / £13136 / £6.81
Probation / 01/04/2013 / £14609 / £7.57

* The hourly rate shown here is based on a 37.5 hour week within the NHS and a 37 hour week in all other bargaining groups. However, the number of hours worked in the average working week can vary from these figures within bargaining groups.

In July 2015, the governmentannouncedin its emergency budget that it will introduce a “national living wage” from April 2016 for workers aged 25 or over. In reality this “living wage” is simply a relabelling of the national minimum wage and raising of the rate for a section of the UK workforce. The rate to come into force in 2016 will be £7.20 an hour and the government has set out the expectation that the rate will rise to 60% of median earnings by 2020, which is likely to lead to a rate in excess of £9 an hour.

If you are faced with an employer who argues that the government is set to introduce a “national living wage” from April 2016 for workers aged over 24 and therefore there is no need for the employer to adopt the Living Wage set out by the Living Wage Foundation, the following points set out why that argument is wrong:
  • The national minimum wage that has been relabelled by the government as the “national living wage” is a figure that has not been worked out on a rigorous basis related to the actual cost of living. Over time it is set to move toward a target rate set at 60% of average earnings, which is a valuable benchmark for reducing inequality in the workplace.
  • However, the reason the UK wide and the London living wages are better measures of the real wage needed to achieve a decent standard of living is that they take account of changes in prices, whereas the cost of living has no direct role in the government’s “living wage.”
  • For example, the Greater London Authority works out the London living wage by calculating the wage needed to achieve a “low cost but acceptable standard of living” for a range of typical families and then it averages the result against the figure advanced by the government based on 60% of average earnings.
  • Loughborough University works out the UK living wage by gathering public views of the items needed for a minimum but acceptable standard of living, costing those items and adding relevant current rates for rent, council tax and childcare. It then ensures that rises don’t act as an excessive burden on organisations by capping any increase at 2% above changes in average earnings.
In short, the government’s “living wage” acts as a welcome limit on wage inequality, but it doesn’t ensure that an organisation’s lowest paid staff can afford a decent standard of living. Only the UK and London living wages announced by the Living Wage Foundation fulfil that role.

6. Earnings of high income groups

The graph below shows the median growth rate in remuneration of FTSE 100 directors over the last four years. Averaging 6.75% during the years of the public sector pay freeze, their remuneration (composed of basic pay, bonuses and share options) grew by just under 14% in the first year of the 1% pay cap and 21% on the second year.

Source: Incomes Data Services

The average remuneration package for FTSE 100 chief executives was worth £4.7m in 2013, which was 174 times the average workers’ salary[4]. The main factor in the 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[5] 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 are expected to receive a 6% increase in dividend payments in 2015, with income hitting £86.5bn[6].

The contrast between public sector pay and income for chief executives, dividends for shareholders and company profits across the UK is illustrated by the graph below.

Sources:
* Average public sector pay settlements over the year to November 2014 (Incomes Data Services)
** Corporations' operating surpluses between 2013 and 2014 (Office for National Statistics, Quarterly National Accounts, March 2015)
*** Estimated growth in shareholder dividend payments between 2014 and 2015 (Capita Asset Services, Dividend Monitor, April 2015)
*** Growth in median FTSE 100 chief executive remuneration between 2013 and 2014 (Incomes Data Services, Directors Pay Report, October 2014)

This pattern also continues the long term trend examined by the TUC[7], 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%.

7. Latest pay settlements

Average pay settlements by sector

Sector / Average reported pay settlements
Across economy / 2.0%
Private sector / 2.3%
Public sector / 1.7%
Not for profit / 2.0%
Energy & gas / 1.6%
Water & waste management / 1.6%
Retail & wholesale / 2.5%
Transportation & storage / 2.0%
Admin & support services / 2.0%
Source: Labour Research Department, based on reported settlements in sector over last year

1

[1] Pay forecasts for the private sector,February 2015, XpertHR

[2]CIPD, Labour Market Outlook, Spring 2015

[3]Office for Budgetary Responsibility, Economic and Fiscal Outlook, July 2015

[4]The High Pay Centre, August 2014

[5]TUC, PensionsWatch 2013

[6]Capita, UK Dividend Monitor, October 2014

[7]TUC, Where Have All the Wages Gone?, H.Reed and J.M.Himmelweit