Page last updated at 13:46 GMT, Friday, 13 March 2009

Pay freezes 'at 10% of UK firms'

By Simon Atkinson
Business reporter, BBC News

Frozen pay packets have cooled the spending power of workers

About one UK company in 10 is freezing pay for staff in an attempt to control costs during the recession, figures released to the BBC suggest.

Incomes Data Services (IDS) said firms were also delaying decisions on wages - which "may be covering a much darker picture" on the extent of pay freezes.

Average pay was still increasing, the IDS said, but at a slower rate.

However some sectors, such as utility firms and the defence industry, seemed relatively unscathed it added.

Retail Prices Index (RPI) - the measure of inflation most commonly used in pay settlements - stands at just 0.1% and is expected to go negative later this month - meaning that prices are falling.

This added to the prospect of more pay freezes and pay cuts, observers said.

'More for less'

Bosses reducing the hours of staff - and as a result the size of their pay packet - has become an increasingly common feature of the recession as companies look to trim costs while keeping skilled and experienced workers within the firm.

Pay freezes are also on the rise - with employees being told to forget any prospect of an annual wage rise because their pay is being put on hold.

When it comes to the time for an annual pay review, firms are saying 'We will put off a decision on what to do'
Ken Mulkearn
Editor, IDS Pay Report

Sometimes management have also waived bonuses and pay hikes.

BT this week said its 100,000 staff would not get pay rises - after the likes of National Express and Tate & Lyle took similar action.

And with flagging car sales, vehicle makers including Toyota and Jaguar Land Rover have announced cuts to working hours and changes to shift patterns, while Honda has closed its UK plant at Swindon for four months.

Meanwhile a salesman at a car dealership in Buckinghamshire told the BBC that his wages had been cut by 12%, while some colleagues had been laid off - meaning "we are doing more work for less money".

Pay 'pauses'

Carmakers and firms making components for vehicles were the most common sectors to freeze pay said Ken Mulkearn, editor of the IDS Pay Report.

He added that frozen pay was "not the whole picture" but the incidences of it had risen and were being seen "in greater numbers than we have for years".

A phone box
BT has told all its staff pay will be frozen

"We are also seeing pay pauses, where it comes to the time for an annual pay review and firms are saying they will put off a decision on what to do about pay," Mr Mulkearn said.

"This means it does not get recorded as a pay freeze even if, in all likelihood that will be the outcome eventually in many cases.

"That may be covering a much darker picture of the number of employers who are freezing pay."

Mr Mulkearn added that some businesses had adopted a "fairness agenda" - telling staff at the higher end of the pay scale that their wages would be frozen, while offering modest increases for employees on lower salaries.

'Budget tightly'

Car worker Mark Carlin from Durham has been affected by the cutbacks in his industry.

His wife Ellen told BBC News that when he was working three shifts a week - as well as any overtime which came his way - the family's finances were, if not bulging, at least manageable.

But since his hours have been trimmed to just two shifts - with a ban on all overtime - things have got much tougher for the couple.

"There are no extra hours at work, in fact he owes them hours because of their time-banking policy," Mrs Carlin told the BBC. "We are having to budget really, really tightly."

It's better for a large number of people to take the pain of a pay cut than to have a small number of people take redundancy, which is totally devastating.

Adam Lent

The trend to freeze pay was becoming "increasingly widespread" said Adam Lent, head of economics at the TUC, adding that "to a certain extent" it was quite understandable.

"It's a very tough recession. People are having their pay frozen or even cut and it can effect their finances extremely badly.

"Unions will always opt for a pay freeze and short-time working over redundancies.

"People understand that it's better for a large number of people to take that pain, which is quite tough, than to have a small number of people take redundancy which is totally devastating."

While many of the moves were well-intentioned - there were some employers who would "take advantage", Mr Lent warned - saying the recession would be seen as an shield behind which to save money.

"Unions will be on the look-out for them and will resist efforts by profitable firms to costs," he said.

Job losses

The deputy director general of the CBI business group, John Cridland, said that about half of its members would not be offering pay rises this year, saying that workforces "understand that it makes sense".

"What else can businesses do? They only have a certain amount of money coming in and a certain amount going out and these have to balance otherwise the business closes down.

Toyota production line
Toyota has already followed other carmakers in cutting temporary jobs

"The objective of a business is not to lay people off. If they have to reduce overtime, if they have to cut out bonuses or change shift patterns they will do so."

And he was critical of suggestions that talk of the government being asked to subsidise employees who had been put onto shorter hours - essentially making up the shortfall in pay packets.

"Almost a million people will lose their jobs simply because of the depth of this recession," Mr Cridland said.

"The taxpayer can't bear the cost. If a business is in deep difficulty, then it is in deep difficulty."

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