Bargaining data
June 2007
Introduction
This is the second edition of a regular update of pay and workforce issues, which will reflect the technical content of the now defunct HPERU Quarterly Bulletin. We will issue earnings and inflation forecasts on a regular basis and supplement these with ad hoc material on earnings surveys as well as other economic content designed to help those who negotiate on behalf of members.
Earnings measures
Average earnings index (AEI)
The AEI is a broad measure of movements in earnings across the economy as a whole and its principal sectors. Data collected for the AEI is based on information obtained from the Monthly Wages and Salary Survey (MWSS) conducted by the office for national statistics (ONS). Average earnings are obtained by dividing the total amount paid by the total number of employees paid, including those employees on strike and temporarily absent.
Indices are published for the whole economy and separately for the public and private sectors and the manufacturing and services sectors. A further breakdown by individual industry is also available.
The AEI is not designed to measure levels of earnings – these are estimated by the Annual Survey of Earnings and Hours (ASHE), described below. The AEI only covers earnings in Great Britain, as the equivalent information is not collected for Northern Ireland.
The indices are published both including and excluding bonus payments, which are a major feature of private sector pay. Information on bonuses is provided by all respondents to the survey that pay them during the reference period. Bonus data are only available since May 1996 and a discontinuity in the series means that a seasonally adjusted series excluding bonuses is available only from July 2000.
The significant effect of bonus payments can be adduced from the most recently published data (March 2007). These show that average earnings including bonuses rose by 4.5 per cent in the year to March 2007, down from 4.6 per cent in February. Average earnings excluding bonuses or regular pay, rose by 3.7 per cent in the year to March 2007, up from 3.6 per cent in February. In the year to March, pay growth (including bonuses) in the private sector was 4.9 per cent, compared with 3.1 per cent for the public sector. Excluding bonus payments, private sector growth stood at 3.8 per cent compared with 3.1 per cent for the public sector.
Average earnings typically grow at around 1.5 per cent more each year than retail price inflation (see Figure 1).
Figure 1: Relative movements in the Average Earnings Index (AEI) and the General Index of Retail Prices (RPI)
Annual Survey of Hours and Earnings (ASHE)
The Annual Survey of Hours and Earnings measures the level, distribution and composition of earnings and hours worked for employees in all industries and occupations. It is based on a 1 per cent sample of the employee population and is measured at April each year, with results published in October. ASHE replaced the former New Earnings Survey used in the past by both the BMA and the Review Body on Doctors’ and Dentists’ Remuneration (DDRB) to benchmark medical and dental pay against comparator groups. Breakdowns provided within ASHE include earnings by gender, contractual status (full-time/part-time), region, occupation, and age-group. Variables include gross hourly, weekly and annual pay (including and excluding overtime pay) as well as gross and overtime hours worked.
Settlements
Data on pay settlements are published by a number of organisations – the most commonly used being the Labour Research Department (LRD), Incomes Data Services (IDS) and Industrial Relations Services (IRS). The definition of a pay settlement is not an exact science but generally speaking a settlement is the percentage change applied to basic pay on an annual basis and excludes such elements of pay as incremental rises, merit pay, bonuses, and overtime and shift allowances. In the three months to April 2007, IRS reported median settlements running at 3 per cent, down from 3.5 per cent in the three months to March.
Pay drift
The difference between a pay settlement and the consequent increase in average earnings is commonly referred to as pay drift. In its 36th report, the DDRB estimated such drift in the economy as a whole as around 1.1 per cent, 0.2 per cent in the public sector and 1.2 per cent in the private sector, from simply calculating the difference between the average earnings index and median settlement levels [go to note 1].
However, this apparently simple definition covers a multitude of factors including those set out earlier and not all these properly fall to be considered as ‘drift’. Incremental increases consequent upon the existence of pay scales are once such element.
Many organisations – most notably public sector ones – provide for employees to proceed up incremental scales on an annual basis as they acquire experience and they are often regarded as discounts to the appropriate rate for the job – the scale maximum. Pay modernisation in the public sector has resulted in the development of pay spines or radically restructured salary scales, access to or movement up which requires the demonstration of additional competence or the acquisition of additional skills. Clearly if incremental scales themselves cannot strictly be regarded as drift, then these new structures are even less deserving of that description. Indeed pay drift is now becoming quite a narrow definition and is largely confined to variable pay elements such as overtime pay.
Table 1 : Latest and forecast movements in earnings indicators
|
Latest data % increase |
Forecast for 2007 |
Forecast for 2008 |
| Average earnings | 4.5 | 4.5 | 2.7(e) |
| Settlements | 3.0 | 3.0 (e) | 2.7 (e) |
(e) Estimate based on constant level of pay drift.
Sources: ONS, Incomes Data Services, Industrial Relations Services & HM Treasury Panel.
Inflation
Table 2 below sets out the latest data and independent forecasts for the various measures of inflation (see Bargaining Data – January 2007 [go to note 2]). These show that inflation on all measures is expected to fall by the end of 2007 and stabilise during 2008. The fall for the general index of retail prices (RPI) is expected to be the most dramatic but the increase in interest rates announced by the Bank of England’s monetary policy committee in May, which took the bank rate to 5.5 per cent, will feed through into mortgage interest payments in the interim and there may well be a temporary rise to accommodate.
Table 2 : Latest and forecast movements in price indicators
|
Latest data % increase |
Forecast for 2007 |
Forecast for 2008 |
| RPI | 4.5 | 3.5 | 2.7 |
| RPIX | 3.6 | 2.7 | 2.6 |
| CPI | 2.8 | 2.0 | 2.0 |
| GDP deflator | 2.25 (2006 outturn) | 2.7 | 2.7 |
Sources: ONS, Incomes Data Services, Industrial Relations Services & HM Treasury Panel, Budget report 2007.
NHS very senior managers' pay
On 25 April, the Department of Health announced the pay settlement for very senior NHS mangers (VSM). In line with the government’s commitment to public sector pay restraint as demonstrated by its treatment of the reports of the independent pay review bodies, the increases in spot rate pay levels were 1.3 per cent. Although details of bonus payments were held over to be announced at a later date, the Department also announced that consideration was being given to bringing these groups into the remit of the Senior Salaries Review Body with effect from the 2008/09 pay round.
The VSM pay framework covers inter alia chief executives; executive directors (except medical directors and directors of public health); and others with Board level responsibility in Strategic Health Authoritiers (SHA) and PCTs. Table 3 below gives details of the 2007/08 rates for VSM in SHAs.
Table 3 : SHA very senior managers – 2007/08 Rates
SHA Chief executive |
Weighted population: April 2007 Rates |
Up to 4m 155,293 | 4m to 7m 165,646 | Over 7m 175,999 | London 196,704 |
| SHA Directors: Finance |
% of chief executive rate: | 116,470 | 124,235 | 131,999 | 147,528 |
| HR & Workforce | 75% | ||||
| Development | 108,705 | 115,952 | 123,199 | 137,693 | |
| Performance | 100,940 |
107,670 |
114,399 |
127,858 | |
| Nursing | 70% |
93,176 |
99,388 |
105,599 |
118,022 |
| IM&T | 65% |
85,411 |
91,105 |
96,799 |
108,187 |
| Corporate affairs | 60% | ||||
| 55% |
References
- Review Body on Doctors’ and Dentists’ Remuneration 36th Report Cm 7025. London: TSO. March 2007. Para 1.54.
- http://www.bma.org.uk/ap.nsf/Content/hperujan07no1?OpenDocument&Highlight=2,bargaining,data