Search the website

Bargaining data - No 1

January 2007

Introduction
This is the first edition of a regular update of pay and workforce issues, which will reflect the technical content of the now defunct Health Policy and Economic Research Unit (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.

Inflation
There are four widely used measures of inflation in the UK economy, each of which measures slightly different things:

• The General Index of Retail Prices (RPI)
• RPIX
• The Consumer Price Index (CPI)
• The GDP deflator

The General Index of Retail Prices (RPI)
The RPI is the most widely known of the inflation measures and is an average measure of change in the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK.

Two types of households are excluded from it on the grounds that they are likely to have atypical spending patterns. These are pensioner households which derive at least three quarters of their total income from state pensions and benefits, and high-income households, defined as those whose income lies within the top 4% of all households.

Although the government now sets its inflation target by reference to the CPI (see below), the RPI continues to be used for the indexation of pensions, state benefits and index-linked gilts and utility regulators impose restrictions on price movements based on the RPI.

General Index of Retail Prices less mortgage interest payments (RPIX)
The General Index of Retail Prices less mortgage interest payments (RPIX) has in the past been referred to as the underlying rate of inflation. Mortgage interest payments are excluded from this measure on volatility grounds.

The Consumer Price Index
The Consumer Price Index (CPI) started life as the UK’s version of the Harmonised Index of Consumer Prices (HICP). HICPs are used to compare relative inflation rates across the European Union, with particular reference to the euro zone and to convergence criteria.

The coverage and construction of individual national price indices had hitherto made such comparisons problematical and there was a need for a common index form. The coverage of the CPI is different to the RPI. On the one hand it excludes a number of items mainly related to housing, including council tax, mortgage interest payments and buildings insurance. On the other hand it includes data relating to students and so includes such items as university accommodation and tuition fees.

The GDP deflator
The GDP deflator is the widest measure of inflation in the UK economy and reflects price movements in all aspects of the economy including household spending, government spending, investment and net trade. It is a weighted average of these price effects including negative weights for imports. It represents the difference between real and money Gross Domestic Product (GDP). By construction it is consistent with other price measures. It will differ from these however especially when there are large price movements in goods and services traded with abroad.

Table 1: Latest and forecast movements in price indicators

		Latest data (% increase over 12 months to December 2006)		Forecast for 2007 (Quarter 4) %
RPI		4.4		2.9*
RPIX		3.9		2.5+
CPI		3.0		2.0+
GDP deflator		2.4 (2006-07 forecast)++		2.7 (2007-08)++

* Incomes Data Services, Industrial Relations Services & HM Treasury Panel
+ HM Treasury Panel
++ Budget report 2006

Medical Earnings
The Annual Survey of Hours and Earnings (ASHE)
The Annual Survey of Hours and Earnings (ASHE) provides information about the levels, distribution and make-up of earnings and hours worked for employees in all industries and occupations. Based on a 1% sample of the employed population (self-employed earners are not included), the ASHE replaced the New Earnings Survey (NES) from 2004. It differs in a number of respects but methodologically it has improved coverage of employees and revised means of in putting values for non-response and of weighting of sample estimates to the whole population for the groups concerned. That said, HPERU has some reservations about the weighting for the medical practitioner group.

The latest ASHE data are for April 2006 and the following information has been extracted from these data:

Table 2: ASHE selected data (UK)

	Median annual earnings(£)	Mean annual earnings (£)	% change in mean earnings over 2005 survey
All full-time employees	23,312	28,015	4.1
Medical practitioners	64,210	71,343	1.9

Traditionally, the BMA has used movements in earnings at the 97th percentile of this distribution as the benchmark for appropriate increases in medical pay. These data are no longer published but earnings at the 90th percentile (£46,201) moved by 4.2%.

Consultant earnings estimates
The health departments’ evidence to the DDRB
In the health departments’ evidence, the following data (table 3) are included for the consultant paybill and by extension consultant earnings per whole-time equivalent (FTE).

Table 3: Estimated and forecast (F) paybill and earnings per head for consultants (England)

	2003/4 £	2004/5 £	2005/06(f) £	2006/07(f) £
Paybill per FTE	118,213	130,819	134,513	140,234
Earnings per FTE	103,246	109,728	112,828	117,629
Percentage change in earnings per FTE	-	6.3	2.8	4.3
Earnings as percentage of paybill	87.3	83.9	83.9	83.9

Source: Health departments’ evidence to the DDRB November 2006 (Revised January 2007)

These data seem counter-intuitive. First, the gap between paybill and earnings estimates is too small representing as it does on-cost of 14.5% in 2003/04 rising to 19.2% for the remainder of the comparison. Pension and employer’s national insurance contributions alone would be 25% of earnings. Furthermore, the increase in earnings in 2004/05 looks too low, bearing in mind that all consultants on the 2003 contract were being paid for the first time for additional hours of work and that two PAs were typical for this.

The NHS earnings survey
The 2004 Earnings survey is based on a one month sample (August) of 51% of NHS trusts that use a specific common payroll system. The system includes information on basic pay, allowances and other payments information for each individual directly employed by the trust.

The data on consultants include those on both the existing and 2003 contracts. The Office of Manpower Economics (OME) has however obtained these data broken down by type of contract and type of income and these are shown in table 4.

Table 4: Consultant earnings in August 2004 (England)

	Estimated Average Salary(1)	Estimated Average Earnings(2)	Additional Earnings (2) – (1) Of which:	Additional hours payments	Location payments	Performance related or bonus payments	Distinction awards / clinical excellence awards	Other allowances
Staff group	£	£	£	£	£	£	£	£
Consultant   (Old & New)	74,559	94,687	20,128	12,019	351	11	3,593	4,154
Consultant -   New Contract	74,569	100,263	25,694	16,267	351	12	4,006	5,057
Consultant -   Old Contract	74,548	88,948	14,399	7,605	355	11	3,194	3,235

General practitioner earnings estimates
There are a number of sources of GMP income. The Health and Social Care Information Centre has published GP earnings data derived from the annual enquiry (EEQ) into GP earnings and expenses conducted by HM Revenue and Customs (HMRC).

These have to date been the authoritative data on GP net incomes and it is important to place them in context. In particular, they are not comparable with historic data on Intended Average Net Income (IANI) being income from all self-employed sources and covering the whole UK. On this occasion also, the data are overstated due to the inclusion of employers’ pension contributions. The 14% employer’s superannuation contribution is, misleadingly, included in net income estimates on tax returns because, for tax purposes, it is considered to be practice income but not an allowable expense.

Earnings are estimated to be overstated by between 6.3 and 7.8%. Average net superannuable income can also be estimated. This is NHS pensionable income which will tend to be greater than GPMS income due to wider coverage but will conversely tend to understate total NHS income due to the impact of the earnings cap.

The various estimates of GP net income/profit are shown in Table 5.

Table 5: Contractor GP net income estimates; 1996/97-2003/04 (GB), 2004/05 (UK)

Year	GMS GB – (Intended Average Net Income (IANI) – see footnote 1)	GPMS GB (Average net superannuable income – see footnote 2)	EEQ UK GPMS – average net income from all sources see footnote 3)
1996-97	£44,483	-	-
1997-98	£46,031	-	-
1998-99	£48,037	-	-
1999-00	£52,606	-	-
2000-01	£54,219	-	-
2001-02	£56,510	-	-
2002-03	£61,618	-	-
2003-04	-	£72,752	£81,566
2004-05	-	-	£106,404

Notes:

1. Figures up to 2002-03 are based on the DDRB's Intended Average Net Income (IANI) and relate to GMS GPs. IANI became redundant with the introduction of the new GMS contract; figures for future years are estimates of actual net income calculated using GP pensionable income data
2. The 2003-04 average net income figure was calculated by the joint DH/BMA/NHS Employers Technical Steering Committee (TSC) in order to set the 2003-04 final pension dynamisation factor for GPs. The figure relates to all principal GMS and PMS GPs. When estimated on the same basis, the average net income for 2002-03 was calculated as £64,443 (4.6% higher than IANI).
3. All sources net income estimates are overstated due to the inclusion in tax data of employers’ pension contributions for GPs. The magnitude of the distortion for all sources data lies between 6.3 and 7.8%.
   • Feedback
   • Equal opportunities
   • Privacy policy
   • Terms and conditions
   • Accessibility
   • Help

   © British Medical Association 2008