Tough deals 'slow wage inflation'

Pay restraint across the NHS will have pleased Gordon Brown

Wage inflation has eased following a series of tough pay settlements in the public sector, research has suggested.

The median figure for pay deals in the three months to May was 3.5%, down from 3.8% in the period to April, Incomes Data Services (IDS) reported.

But this masked a disparity between public sector and private wage deals with the latter 1% higher on average.

Ministers have called for general wage restraint to help contain rising inflationary pressures in the economy.

Wage control is needed in both the "boardroom and the shop floor" to prevent a return to the inflation spiral of the 1970s and 1980s, Chancellor Alistair Darling warned recently.

Inflation target

Rising food and fuel costs have pushed the annual rate of consumer price inflation up to 3.3%, well above the government's 2% target.

The wider retail prices index measure of inflation - the one used for many pay negotiations - is already at 4.3%.

This has led to worries that demands for higher pay, to reflect this sharp increase in basic living costs, will further stoke inflationary pressures.

Deals in manufacturing continue to keep private sector settlements at relatively high levels on average Ken Mulkearn, Incomes Data Services

Ministers have called for pay settlements "consistent" with the government's inflation target.

However, soaring living costs and inflation-busting private sector agreements, such as the 14% two-year deal for Shell tanker drivers following last month's four-day strike, have increased pressure on unions to renegotiate deals to seek higher increases.

Council workers affiliated to Unison voted last month in favour of industrial action after rejecting a 2.45% pay offer.

According to IDS, the median public sector deal over the latest period was 2.7% compared with 3.8% in the private sector.

Of 31 settlements below 3% agreed over the period, more than half were in the public sector.

The figures included the 2.75% increase agreed by 1.2 million NHS workers last month, backdated to April.

However, more than 40% of all deals still exceeded 4%.

"Deals in manufacturing - including settlements at firms in the chemicals, engineering and food and drink sectors - continue to keep private sector settlements at relatively high levels on average," said Ken Mulkearn, editor of the IDS pay report.

"Inflation, driven by external factors like food and fuel prices, labour market factors and affordability, as well as the extent of collective bargaining at private firms, are all parts of the picture," he added.