Download Pay settlements and average earnings outline

PAY SETTLEMENTS AND AVERAGE EARNINGS
This outline of pay settlements and average earnings provides a picture of trends across the
economy and comparisons between the public and private sectors. It goes on to look at the
specific trends for major occupations, differing rates across the countries of the UK / English
regions, and draws comparisons for the low and high-paid. Finally, it provides a round-up of
average pay settlements by sector.
1.
Pay settlement trends across economy
Pay settlements across the economy stand at 2%, which is well below the long-run median
of between 3% and 3.5%.
Average pay settlements
2.5
2
2
% increase
2
1.5
1
1
Public
Voluntary
1
0.5
0
Whole economy
Private
Source: Labour Research Department, settlement sover year to July 2016
A huge gap opened up between private and public sector settlements in 2010 that grew
during 2011 and 2012 when the pay freeze imposed on the public sector was accompanied
by average pay rises of 2.5% in the private sector. Since then, the 1% public sector pay cap
has been running at around half of the average rate in the private sector. Latest figures show
public sector pay settlements at 1% over the last year, private sector settlements at 2% and
voluntary sector settlements at 1%. Private sector employers expect settlements to continue
at 2% over the year to February 20171 while public sector rates are forecast at 1% to autumn
20162. Not-for-profit sector rates are forecast to average 1%, while the electricity, gas and
water industry is expected to average 2%3 over the year to February 2017.
1
Pay forecasts for the private sector, March 2016, XpertHR
2
CIPD, Labour Market Outlook, Autumn 2015
3
Pay forecasts for the private sector, March 2016, XpertHR
1
2. Average earnings trends across economy
The graph below shows trends in average earnings growth over the last two years. Since
April 2013, private sector earnings growth has been running ahead of the public sector every
month except two. In 2014, the private sector rate accelerated sharply while the public sector
rate flattened out. While the gap has narrowed over recent months, a sharp divide remains,
with the rate across the economy standing at 2.3% and private sector growth at 2.4%, while
average public sector wages rose by 1.7% in May 2016.
% change of 3 month average on previous year
Average earnings growth
4.5
4.0
3.5
3.0
2.5
2.0
Whole Economy
1.5
Private sector
Public sector
1.0
0.5
0.0
-0.5 Jun
14
-1.0
Aug
14
Oct
14
Dec
14
Feb
15
Apr
15
Jun
15
Aug
15
Oct
15
Dec
15
Feb
16
Apr
16
Month
Source: Office for National Statistics, Labour Market Statistics, July 2016
Forecasts of average earnings predict that growth will stand at 2.6% during 2016 and jump
to 3.6% by 2017, where is it is set to broadly remain until 2020 following the pattern shown
below4.
4
Office for Budgetary Responsibility, Economic and Fiscal Outlook, March 2016
2
Forecast average earnings growth
4
% annual growth
3.5
3
2.5
2
1.5
1
0.5
0
2016
2017
2018
2019
2020
Note on difference between pay settlements and average earnings
Before public sector average earnings growth dropped well below the private sector rate in
2013, average earnings were often used as a basis to argue that the public sector continues
to see improvements in pay that are not matched by the private sector and particularly as a
basis for attacking pay progression.
The flaw in these arguments is that the use of average earnings growth for comparisons
does not simply reflect changes due to pay settlements and pay progression.
Changes in the average are affected by a multitude of factors that affect the composition of
the public and private workforce. Any changes that swell the lower paid end of the workforce
and/or reduce the proportion of higher paid employees, such as differences between the
sectors in recruiting staff on part time or zero hours contracts, or redundancies that hit the
most recent recruits hardest, will act as a downward pressure on the average.
The government’s drive toward greater outsourcing in itself tends to lower private sector
average earnings growth and raise public sector growth because of the marked tendency for
outsourcing to focus on lower paid sections of the workforce.
Therefore, average earnings growth does not offer any kind of sound basis for judging actual
changes in the pay packet of a worker in the public or private sector. Pay settlement data
forms a much sounder basis for comparison as it eradicates the differences in workforce
composition that affects average earnings growth comparisons.
3
3. Earnings growth by occupation
The Annual Survey of Hours and Earnings (ASHE) provides data that can form useful
comparators for changes in average earnings experienced by UNISON members. The table
below shows the change in median gross annual pay for full-time staff within the main job
categories listed. A listing of earnings growth for more specific jobs within these categories
can be found on the Office for National Statistics website by clicking here
ASHE data on changes in median gross annual pay for full-time employees
Job Type
Annual % change
2014/15
All employees
1.6
Managers, directors and senior officials
1.0
Corporate managers and directors
1.3
Other managers and proprietors
-1.3
Professional occupations
1.0
Science, research, engineering and technology professionals
1.4
Health professionals
-0.3
Teaching and educational professionals
1.0
Business, media and public service professionals
2.4
Associate professional and technical occupations
0.8
Science, engineering and technology associate professionals
0.7
Health and social care associate professionals
-0.8
Protective service occupations
1.0
Culture, media and sports occupations
0.4
Business and public service associate professionals
0.9
Administrative and secretarial occupations
2.2
Administrative occupations
2.5
Secretarial and related occupations
-0.1
Skilled trades occupations
1.5
Skilled agricultural and related trades
0.8
Skilled metal, electrical and electronic trades
0.9
Skilled construction and building trades
1.3
Textiles, printing and other skilled trades
2.3
Caring, leisure and other service occupations
0.2
Caring personal service occupations
-0.1
Leisure, travel and related personal service occupations
1.9
Sales and customer service occupations
2.8
Sales occupations
3.3
Customer service occupations
2.1
4
4. Earnings growth by region
The Annual Survey of Hours Earnings provides a breakdown of earnings growth by region
and local authority can be found at http://www.ons.gov.uk/ons/rel/ashe/annual-survey-ofhours-and-earnings/2015-provisional-results/stb-ashe.html#tab-Regional-earnings
Data on the proportion of employees paid below the Living Wage is available by
parliamentary constituency at http://visual.ons.gov.uk/how-many-jobs-are-paid-less-than-theliving-wage-in-your-area/
For England, a table setting out the cost of housing relative to wages by local authority
district is available at
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/321017/Table
_577.xlsx
5. Earnings of low-paid staff
The adult minimum wage rose to £6.70 an hour in October 2015 and in November 2015 the
Living Wage Foundation announced that new “Living Wage” rates of £9.40 an hour in
London and £8.25 an hour across the rest of the UK (accredited Living Wage employers
have until next April to implement this rate).
The Living Wage has become a standard benchmark for the minimum needed for low-paid
staff to have a “basic but acceptable” standard of living.
There are now approximately 2,300 employers accredited as living wage employers by the
Living Wage Foundation, including some of the largest private companies in the UK, such as
Barclays, HSBC, IKEA and Lidl. Over a quarter of the FTSE 100 companies are now
accredited.
Across the public sector, there have been widespread agreements to introduce the Living
Wage:

The Scotland government has established the Living Wage within all its public sector
organisations

Minimum rates have been raised to the Living Wage or above in the most recent pay
settlements for staff in the Welsh NHS and police staff in England and Wales

Framework agreements for support staff in more than 12,000 schools across the UK
set the Living Wage as a key target
Even where the Living Wage has not been achieved, pay deals have delivered considerably
higher than average rises for the lowest paid staff. For example, local government
employees on NJC terms and conditions saw a 6.6% rise for the lowest paid staff in 2016.
Furthermore, even where national agreements have not achieved a Living Wage settlement,
a major proportion of individual councils, NHS trusts, schools and academies have taken up
the living wage on their own initiative. A UNISON Freedom of Information survey covering
local government, the NHS, universities, further education colleges and police authorities
that drew over 900 responses found that 51% of employers across these sectors already
pay at least the living wage to their lowest paid staff.
5
Though not directly classified as public sector, a Guardian survey in June 2015 also
revealed that two thirds of housing associations pay the living wage, with a third accredited
by the Living Wage Foundation and a third paying the wage without official accreditation.
Only a minority of employers that adopt the Living Wage have gone down the route of
seeking official accreditation as a living wage employer. However, there are now 39 councils
accredited as living wage employers by the Living Wage Foundation, along with nine trusts
and 34 acadamies / schools.
“National living wage”
In July 2015, the government announced in its emergency budget that it would introduce
a “national living wage” from April 2016 for workers aged 25 or over. In reality this “living
wage” is simply a relabelling of the National Minimum Wage and raising of the rate for a
section of the UK workforce.
The rate that came into force in April 2016 was set at £7.20 an hour and the government
has set out the expectation that the rate will rise to 60% of median earnings by 2020. The
Office for Budgetary Responsibility (OBR) has estimated that this will lead to a rate of
£9.00 an hour5 by 2020. If this forecast turns out to be correct and the Low Pay
Commission follows a straight path to the 2020 target, the OBR predicts that the
National Minimum Wage for workers aged 25 or over will unfold as follows:
Hourly rate
5
2016
2017
2018
2019
2020
£7.20
£7.60
£8.05
£8.50
£9.00
Office for Budgetary Responsibility, Economic and Fiscal Outlook, March 2016
6
If you are faced with an employer who argues that the government is set to introduce a
“national living wage” from April 2016 for workers aged over 24 and therefore there is no
need for the employer to adopt the Living Wage set out by the Living Wage Foundation, the
following points set out why that argument is wrong:




The National Minimum Wage that has been relabelled by the government as the
“national living wage” is a figure that has not been worked out on a rigorous basis
related to the actual cost of living. Over time it is set to move toward a target rate set
at 60% of average earnings, which is a valuable benchmark for reducing inequality in
the workplace.
However, the reason the UK wide and the London living wages are better measures
of the real wage needed to achieve a decent standard of living is that they take
account of changes in prices, whereas the cost of living has no direct role in the
government’s “living wage.”
For example, the Greater London Authority works out the London Living Wage by
calculating the wage needed to achieve a “low cost but acceptable standard of living”
for a range of typical families and then it averages the result against the figure
advanced by the government based on 60% of average earnings.
Loughborough University works out the UK Living Wage by gathering public views of
the items needed for a minimum but acceptable standard of living, costing those
items and adding relevant current rates for rent, council tax and childcare. It then
ensures that rises don’t act as an excessive burden on organisations by capping any
increase at 2% above changes in average earnings.
In short, the government’s “living wage” acts as a welcome limit on wage inequality, but it
doesn’t ensure that an organisation’s lowest paid staff can afford a decent standard of living.
Only the UK and London living wages announced by the Living Wage Foundation fulfil that
role.
Welfare cuts
Changes to minimum wage rates have to be seen in the context of the March 2016 budget,
which will result in a £2.7 billion a year cut in the welfare budget as the Universal Credit
system takes effect.
The net cash effect on each income group is reflected in the black line showing on the graph
below from the Institute for Fiscal Studies’ analysis in its Green Budget 2016. All but the
richest two income decile groups will suffer losses, with the size of that loss generally higher
for the poorest groups and reductions to entitlements falling £1,400 a year in some cases.
7
Recent analysis by the Resolution Foundation6 found that “Universal Credit will on balance
be less generous than the tax credit system for working families. Even when considered
alongside policies designed to boost incomes, including the introduction of the National
Living Wage and income tax cuts, relative to the current system without those measures in
place, the latest version of UC implies:
6

1.3 million working families entitled to support in the tax credit system will no longer
be entitled to any in-work support, leaving them £42 a week worse off on average;

A further 1.2 million are set to receive UC, but be an average of £41 a week worse
off;

1.7 million still in receipt of UC will be better off by an average of £38 a week;

Only around 200,000 families who are no are longer entitled to UC at all will be
overall better off following cuts to in-work support and boosts to income from the
national living wage and income tax cuts.”
Resolution Foundation, Universal Challenge: Making a success of Universal Credit, May 2016
8
6. Comparisons of pay cap against wider economy
The graphs below put the public sector pay cap in the context of developments across the wider economy. While the average value of public
sector pay rises over the last five years has been 3.4%, the value of the economy has increased by over 12%, the cost of living has risen by
almost 20%, the pay of chief executives for the UK’s largest companies has grown by over 20%, company profits have jumped by 24% and
total dividends paid to shareholders have grown by 49%.
How does public sector pay compare over the last five years
60.0%
Growth rate
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Pay rise since 2010* Value of economy
**
Cost of living***
Top bosses' pay
****
Company profits
Dividends to
*****
shareholders******
Sources:
* Based on median public sector pay rise of 0.4% in 2010 (Incomes Data Services), followed by pay freezes in 2011 and 2012, then 1% pay cap in 2013,2014 and 2015
** Based on growth in gross domestic product between Q1 2010 and Q4 2015 from Office for National Statistics, Second Estimate of GDP, Quarter Q4 (Oct to Dec) 2015
*** Based on Retail Prices Index between January 2010 and December 2015, taken from Office for National Statistics, Consumer Price Inflation, December 2015
**** Based on growth in average FTSE 100 chief executive pay between 2010 and 2014 from High Pay Centre, The State of Pay, August 2015
***** Based on corporations' operating surpluses between Q1 2010 and Q4 2015 from Office for National Statistics, Second Estimate of GDP, Quarter Q4 (Oct to Dec) 2015
****** Based on dividends paid between 2010 and 2015 from Capita UK Dividend Monitor, January 2016
9
When examining the outlook over the next four years, during which time the pay cap is set to
remain in force, the average increase in the value of the economy is set to run at 2.4%, the
cost of living is due to grow at 3% a year and average earnings growth is expected to
average 3.7%.
Growth rate (%)
How does the pay cap compare to forecasts for
next few years?
4.00
3.00
2.00
1.00
0.00
Pay cap
Value of economy*
Cost of living **
Average wages***
Sources:
* Based on average GDP forecasts from Office for Budgetary Responsibility, Economic and Fiscal Outlook, March 2016
** Based on average RPI forecasts from HM Treasury, Forecasts for the UK Economy, May 2016
*** Based on average earnings forecasts from Office for Budgetary Responsibility, Economic and Fiscal Outlook, March 2016
7. Latest pay settlements
Average pay settlements by sector
Sector
Average reported pay settlements
Across economy
2.0%
Private sector
2.0%
Public sector
1.0%
Not for profit
1.0%
Energy & gas
1.5%
Water & waste management
1.9%
Retail & wholesale
2.4%
Transportation & storage
Information & communication
Admin & support services
2.0%
2.0%
2.0%
Source: Labour Research Department, based on reported settlements in sector over last year
If you require greater detail on pay settlements for particular sectors, contact the Bargaining
Support Group on [email protected]
10
Most recent pay rises among some of UNISON’s largest bargaining groups
Bargaining Group
Most recent pay settlement
Local Government Services
NJC (England, Wales &
Northern Ireland)
BASIC: 1% from April 2016,
Scottish Joint Council for
Local Government
Employees
EXCEPTION: Rises ranging from 6.6% to 1.2% for SCPs 6-16
BASIC: 1% from April 2016
EXCEPTION: Bottom points raised to Living Wage
ENGLAND: 1% from April 2016
Health - Agenda for Change
staff
SCOTLAND: BASIC: 1% from April 2016 / EXCEPTION: Bottom point
raised to Living Wage
WALES: BASIC: 1% from April 2016 EXCEPTION: Bottom point raised to
Living Wage
NORTHERN IRELAND: 1% from April 2016
ENGLAND: 0% from August 2015
Further Education
SCOTLAND: 1% or £300, whichever is the greater, from April 2015 All
directly employed staff receive at least Living Wage.
WALES: 1% from August 2015
BASIC: 1% from August 2015 on all points above SCP9
Higher Education
EXCEPTION: Bottom point raised to Living Wage for staff on 35 hour
week and tapering ranging between 1.1% and 2.6% for bottom eight
points
BASIC: 0.9% increase from September 2015
Sixth Form Colleges
(England)
EXCEPTION: Additional increases for the lowest paid which increased
the value of the offer to 1% of paybill
Police Staff (England &
Wales)
2.2% or £400 (whichever is the greater) from 1 March 2015 to
31 August 2016
11