Workplace Report April 2015


Most workers still waiting for return of good times on pay

On the eve of the 2015 general election, low inflation has taken hold. But has that impacted on pay settlements? Now at its halfway point, Workplace Report examines what has happened in the 2014-15 pay round so far.

The headline figure among settlements from Labour Research Department’s Payline database of collectively agreed deals is a median (midpoint) rise of 2.3% for the pay round so far — down on the 2.5% recorded the same time last year.

A sharp fall in inflation through the pay round so far has been an influencing factor on settlements. The Retail Prices Index (RPI) rose by just 0.9% in the year to March, while there was a second month of 0% inflation under the Consumer Prices Index (CPI).

That’s a stark contrast with 2.4% RPI inflation at the start of the pay round last August, and an average annual increase of 3.7% between 2010 and 2014. Reduced oil and petrol prices have played a big part in this, as have lower clothing and footwear costs and falling gas bills.

Stronger earnings growth, which can be affected by changes in the make-up of the workforce, is predicted, but hasn’t yet arrived. The Office for Budget Responsibility (OBR) said in March “average earnings growth in 2015 is now expected to be 2.5%”, up from 2.4% growth forecast in December. However, the latest figures from the Office for National Statistics show that in the three months ending February 2015 regular pay excluding bonuses posted annual growth of 1.8%.

On pay settlements, the Bank of England’s Inflation Report in February said: “A recent survey of pay growth conducted by the Bank’s Agents suggests that wage settlements — one source of earnings growth — will be very slightly higher in 2015 than in 2014.”

Payline pay settlements

Yet “higher” settlements is not the story that stands out from deals monitored through Payline. Among almost 400 deals effective so far in the 2014-15 pay round (August 2014 to April 2015) the median increase is 2.3%. The bottom quarter of settlements were worth 1.75% or less, the top quarter 2.76% or more.

The pay round so far: August 2014-April 2015

Settlements Pay increases
Type Number Lower quartile Median Upper quartile
Increase on lowest basic rates All 353 1.75% 2.30% 2.76%
New 183 1.50% 2.00% 2.62%
Standard increase All 315 1.73% 2.25% 2.70%
New 163 1.50% 2.00% 2.50%

"New" settlements are either un-staged or in their first stage

Based on 397 settlements effective between 1 August 2014 and 30 April 2015

Compared with the the rise recorded in the same period of the last pay round, and the last pay round overall, the median figure shows a fall. Last April, the median rise was 2.5%, with the bottom quarter 2.0% or less and the top quarter 3.0% and, as Workplace Report reported in October, that range of rises persisted for the whole of the 2013-14 pay round.

The median figure is, however, above that of the only other remaining pay analyst of note XpertHR, who have reported a 2.0% median rise for the whole economy since the beginning of the 2014-15 pay round. Their figure may be lower because it includes non-union deals.

Increases on the lowest basic rate can be higher (or sometimes lower) than the increase for most workers, the “standard increase”. Across the Workplace Report survey as a whole, the two measures are very similar.

While the lowest basic rate median rise was 2.3% the standard median rise was 2.25%. But at the level of individual deals or sectors the results can be very different. A prime example is the Local Government Services NJC agreement for England, Wales and Northern Ireland, which was worth up to 8.56% to the lowest paid, but 2.2% for most workers.

Basic and ‘standard’ pay rises

The value of pay settlements in the 2014-15 pay round can be assessed in two different ways, the increase on the lowest basic rate or the “standard” increase that applies to most workers.

In the majority of settlements the two figures are the same but there exceptions including the Local Government Services NJC for England, Wales and Northern Ireland.

The NJC’s usual settlement date is 1 April, but under the current agreement no changes were made to pay scales from April 2014. Non-consolidated lump-sum payments were paid out from 1 December while salary increases applied from 1 January 2015. Staff earning below £14,880 a year received increases of up to 8.56%, but those on spine point 11 and above received 2.2%.

Although the lowest basic rate increase included in the survey was 8.56%, the standard increase was much lower.

Variations in basic and standard rises arose in other agreements where:

Some grades received no pay rise:

In the Prison Service settlement there was no increase for majority of staff on the old grades but increases for the minority on Fair and Sustainable pay bands, including the abolition of the lowest pay point.

The National Minimum Wage increase in October 2014 (3% on the adult rate) required a bigger adjustment to the lowest rate:

That was the case at food group Karro (Cookstown) where other grades got 1.5%.

The lowest pay points were eliminated:

Bottom spine points 8 and 9 were deleted from the pay scale for sixth form college staff, making point 10 the new minimum rate.

Under the Further Education England national agreement the lowest spine point was deleted and a further 2% applied to make the next point equivalent to the Living Wage.

The lowest pay levels were adjusted to conform to the voluntary Living Wage:

At National Galleries of Scotland all pay scales increased by 1%, but the Band 8 minimum increased by 2.69% to the Scottish Living Wage rate of £7.85 an hour.

In NHS Scotland Agenda For Change, all pay points over £21,000 got 1% but points below £21,000 received a flat-rate £300 plus the Living Wage.

The relationship between pay levels for different grades changed:

There was a 1.6% rise at Kier May Gurney (North Somerset), but additional percentage increases were applied to close the pay gap between Recycling and Collection operatives.

A percentage rise was underpinned by a cash settlement:

At ferry group Wightlink a 2.6% rise was underpinned by a minimum rise of £475.00 (worth up to 3.85%).

Bargaining groups at financial service group Santander had a 2.9% rise underpinned by a £500 award. And at the Health and Safety Executive a 1% consolidated increase was underpinned by a £250 minimum rise.

A higher percentage pay rise applied to certain grades:

At UK Theatres there was a 1% increase for Grades 1-4 but 2% for Grade 5.

Under the Police Staff agreement pay points 4 to 12 rose by £400 (up to 2.68%), but other pay points increased by 2.2%.

The Agricultural Wages Board (Scotland) increased the minimum hourly rate for the first 26 weeks of employment by 2.8%, but the over-26 week grades got 2.15%.

With the inflation rate changing rapidly, the timing of settlements in the 2014-15 pay round is significant, including whether deals are newly-negotiated, or are the result of a staged settlement.

The split in the pay round

Pre-Christmas: August-December 2014

Settlements Pay increases
Type Number Lower quartile Median Upper quartile
Increase on lowest basic rates All settlements 145 1.50% 2.27% 2.70%
New settlements 105 1.20% 2.00% 2.50%
Standard increase All settlements 114 1.31% 2.10% 2.54%
New settlements 90 1.13% 2.00% 2.50%

New Year (January-April 2015)

Settlements Pay increases
Type Number Lower quartile Median Upper quartile
Increase on lowest basic rates All settlements 208 1.90% 2.45% 2.80%
New settlements 78 1.75% 2.00% 2.70%
Standard increase All settlements 201 1.90% 2.25% 2.70%
New settlements 73 1.75% 2.00% 2.50%

"New" settlements are either un-staged or in their first stage

Before Christmas, the median increase on lowest basic rates was 2.27%. Since the start of the New Year, as inflation fell it was 2.45%, apparently an upward trend. But staged deals often attract a slightly higher level of pay award and under current conditions have the advantage of having been negotiated under an environment of higher inflation. They may include a direct link to an earlier, higher inflation rate.

They account for a much bigger proportion of the survey in the New Year (62%) than before Christmas (28%) and help explain what may prove to be a temporary New Year lift in settlements.

Inflation and staged deals

Plunging inflation in either of the main measures — the Retail Prices Index (RPI) and the Consumer Prices Index (CPI) —could have spelled trouble for agreements, primarily staged deals, that include a direct link to inflation. However, in many cases the settlement level achieved has been higher than new and un-staged deals, thanks to the way these links were negotiated.

A rise of 3.55% was payable to Offshore Divers under their staged long-term deal based on average RPI (October 2013 to September 2014) plus 1%. However, the employers in offshore catering have reneged on their commitment for 2015.

A figure of 2.6% was payable under the Plumbing England & Wales JIB settlement based on the average RPI figure from January 2014 to June 2014. Workers at distribution group Freightliner Heavy Haul got almost the same (2.55%) based on the average RPI between October 2013 and September 2014.

The 2.5% rise at carmaker BMW (Mini plant Oxford) was based on the average RPI for January to November 2014.

The 2.25% final stage rise at First Tram Operations was based on November 2014 RPI plus 0.25%.However there have some “straight” inflation-based rises that were more affected by falling inflation. JCB’s 2.0% in January was based on the November 2014 RPI, while the same rise at Caterpillar Building Construction Products (BCP) was based on the now less familiar RPIX measure of inflation (RPI excluding mortgage interest payments).

Settlements at British Airways applied increases of 1.6%, based on the December RPI rate; while the 1.5% final stage of UK Power Networks Services’ five-year agreement was based on the February RPI (1.0%) plus 0.5%.

The staged 1% pay rise at bus group First Bristol was also based on the February RPI figure, as were pay rises at its fellow subsidiary First South West and electricity generator First Hydro.

The 10-year CPI-based deal at Spirit Aerosystems (Europe) was worth 1.68% this year. Rises at Castle Cement and Hanson Building Products, based on average CPI for September, October and November plus 0.5% were worth 1.67%.

After a lengthy high-profile dispute at Care UK (Doncaster), a 2% settlement was reached (together with restoration of the principle of premium rates for unsocial hours) and they will get 2% or a CPI-based pay award, whichever is greater, for the next three years.

At EDF Energy (Office), the rise would have been the February CPI (0%) plus 0.3%, but was subject to a minimum of 1.8% (and a maximum of 2.3%).

A variety of other protections have helped bolster the value of some staged deals. At Curzon Cinemas, a 12.14% rise on the lowest basic rate was due to implementation of the Living Wage, which the company agreed to meet as long as the rate does not increase above the RPI plus 3%.

New deals, either un-staged or in their first stage, have a lower value (median 2.0%, lower quartile 1.5%, upper quartile 2.62%). That 2% new deal median applied equally before Christmas and in the New Year. It helps explain the lower pay-round midpoint of 2.3% overall.

Typical deals in the middle of the range included:

• 2% at Computacenter (BT and First Group contracts), Marshall Aerospace, the Monmouthshire Building Society and the big Electrical Contracting Industry agreement;

• 2.3% at bus company Southern Vectis in its second stage (it had a “protection mechanism” if inflation was 1.5% over the agreed percentage increase, but that was not triggered); and

• 2.4% up to 2.49% at DHL Supply Chain (Marks and Spencer) forwarehouse operatives; bus company First South Yorkshire where a 0.29% increase to £10.40 an hour in January took the total rise over this short, staged 12-month agreement to 2.46%; and the Ritzy Cinema Living Wage settlement where the third stage took the basic hourly rate to £8.40.

Industrial sectors

While the overall level of settlements has dropped there are areas of strength, and an increase of 3.5% or more was twice as likely as a pay freeze (9% of deals saw their lowest basic rate rise by at least that amount).

Many of these deals are in the automotive and engineering sector, which will be covered in more detail in a forthcoming issue of Workplace Report.

Deals also include contractors in the transport sector like Lightbridge Support Services (Southern Contract) where a 25p per hour increase took the minimum rate to £6.81, a 3.81% rise. At Voith (Alstom Virgin Trains Contract) there was a 4% increase to base rates and an assurance that the minimum will be £8.00 from 1 October 2015.

Other examples include Fowler Welch drivers in Washington, Tyne & Wear (5%); London Theatres (from £1 an hour more for front of house staff to 4.5% for technical and other staff); Ocean Integrated Services at Birkbeck College (London Living Wage-based rate up by 3.97% to £9.15 per hour); Amey Electricians, Sheffield (3.7% following a one day strike); and Bank of Ireland (2% in January 2015 following a 1.75% backdated rise in December).

Two of the sectors with the strongest pay trends, manufacturing (median 2.5%) and transport & storage (median 2.4%) account for half of all the agreements in this survey. In manufacturing they included 3% at Bernard Matthews Foods and at Walkers Shortbread. In transport and storage, Easyjet pilots got 3.3%, while at Royal Mail Letters the staged increase was 2.8%.

There were stronger settlements too in information and communications and wholesale/retail, each with a 2.4% median and 2.8% upper quartile.

Settlements ranged from up to 5% at Scottish TV, to 2.5% for NewGRID grades at BT, down to 1% at Ordnance Survey.

In wholesale and retail the range was narrower, from 3% at AAH Pharmaceuticals, Co-Operative Pharmacy, Home Retail Group and Sainsbury’s to 1.5% at Wilkinson Stores.

Sector medians of 2.0% or less prevailed in construction; human health and social work; education; and arts, entertainment and recreation. In public administration and defence the median was 1.5%.

Pay freezes

Freezes have not disappeared off the bargaining front — barely 4% of settlements resulted in a pay freeze — but they include some big name companies. Vauxhall Motors at Ellesmere Port is in the second year of a four-year agreement with pay frozen for the first two years.

Ineos Manufacturing Scotland is in the second year of a three year freeze; and there are ongoing freezes at transport company Arrow XL and packaging manufacturer Encase.

Pay has been frozen for one year at GE Aviation Systems (Hamble). And there is a more selective freeze at retailer Poundland applied to staff aged 16-17, 18-20 and senior sales staff on old contracts, although for other grades pay rose by 2.63% on average.

Public sector

Some Pay Review Body settlements involved pay freezes too (see Workplace Report, March 2015).

Meanwhile, at Kent Adult Education, where pay was frozen last September, a 1% rise in 2013 was the first increase since 2008.

The Forestry Commission imposed an increase of £250 for staff earning less than £21,000 year and £205 across-the-board for all other staff, but with no change to pay scales.

There was no change to pay band minima and maxima at the Cabinet Office, while at the Ministry of Justice there were only selective changes. At Transport for London (Bus Operations), a two-stage 24-month agreement provided lump sum payments of 3% and other perks, but with no consolidated salary increase until the second stage.

Public sector deals account for 22% of the survey and have been more varied than might be expected, due in part to the willingness of the workers involved to take industrial action. The sector had a median increase of 1.6% on lowest basic rates with an upper quartile of 2.5%, and a lower quartile of 1%; but the “standard” median increase was lower at 1%.

Just over half of the public sector agreements were in public administration and defence. Increases on the lowest basic rates for that latter sector (which does include a few private sector companies) range from zero to 8.61%, whereas the “standard increase” range is narrower (from zero to 3%).

In public sector health, the NHS Agenda for Change agreement eventually delivered different deals in England, Scotland and Wales. In England, the lowest basic rate rose by 5.6% through the deletion of the lowest spine point and the raising of the second spine point to £15,100; other rises were closer to 1% or zero as higher spine points went unchanged.

Scotland started from a higher base as it was already government policy to pay the living wage. Underpinned also by a £300 minimum award it put 1.99% on the lowest basic rate.

In Wales, the most recent rise was 1% from 1 April, but the introduction of the Living Wage in January increased pay points 1-3 to £15,350 a year (up to a 7.39% increase for those who had been on the lowest pay point).

The standard increase in both Scotland and Wales was 1% (in England the mix of awards higher up the pay range made it difficult to assess a “standard” increase).

There were a wide range of settlements in education, some of which (in official statistics) are classed as private sector. That’s the case in further education (where there was a 1% across the board rise in Wales) and higher education (2%, double the government’s 1% cap, with an additional £30 related to the living wage).

In a delayed settlement the Local Authorities Soulbury Committee award for educational psychologists and other professionals increased pay by 2.2%.

Unpredictable future

As the pay round progresses the effect of staged deals, which have helped lift the settlement level since January, will be diluted. New deals negotiated under low-inflation, or even zero or negative-inflation conditions, will increasingly influence the overall outcome of the pay round.

By that time a new government will be in place and the approach to the economy, to the statutory National Minimum Wage, to the voluntary Livinving Wage and to public sector pay may have moved on.