The Big Freeze by Glen Jenkins

Following one of the coldest winters for decades, the words ‘economic winter’ and ‘pay freeze’ are not what employees want to hear as they try to pay their gas bill. They crave, as do we all, for the thaw and the season of economic growth with more significant signs of those young ‘seeds’ that inexperienced politicians like to talk about, or is it talk up about? While the snow has gone and the flowers bloom again, the sun has yet to shine on the economic landscape for freezing pay remains as popular as it ever has been in such winters as this. In the past, of course, pay freezes were tied to rising wage-push inflation as a way of reducing demand but in this economic winter pay freezes are tied to the lowest inflationary period since World War II and are set to continue into 2011. And, unlike in the past, the Labour and Conservative parties are like conjoined twins – they would like separate agendas but are tied by a harsher reality, the public sector deficit. However, for the Prime Minister, such reality gave him the opportunity to freeze Cameron’s pay without dissent. Every little helps as they say.

The winter brought with it some storms that seemed to go on and on into summer time. The storms were no less severe in the economic climate, battering at our political and economic institutions. In parliament, the storms over the global financial crisis and MPs expenses caused structural damage to our economic and democratic institutions. Even when bankers froze their bonuses in Scotland, where the climate has been most severe, this symbolic gesture of solidarity with other employees led to some very cold exchanges in The Scotsman newspaper that no antifreeze could melt. And, even when pay was frozen but bonuses not, as in the case of the FSA, the policy received a less than warm response from some MPs and the general public alike.  Whether pay or bonuses the big freeze continued.

What this means in real terms is that most of us are now paying for the errors of our financial institutions. The private sector, where the economic storms hit first, continues to freeze pay or worse, no pay at all. In the public sector, the storms have had a similar affect and it is not over yet.

Those in employment received in February, according to an Incomes Data Service report, an average 2 per cent pay rise with inflation then at 3.5 per cent. However, in both private and public sectors the frost bit harder in some areas than in others. For example, some employers, like Robert Wiseman Dairies avoided its worst effects. They financially rewarded their employees’ heroic efforts for battling through the snow to keep the nation’s milk flowing in the arctic conditions but for local government workers, who worked in the same conditions so that the milk could be delivered, there is likely be no such recognition. In the public sector pay freezes have been announced in all departments but this will not be an equal effect. For some employees, like teachers, who are insulated by their pay review body and MPs who are insulated by themselves, there will be no pay freeze this year.

What the severe economic climate brought home to us is two key elements of employee rewards – ability to pay and fairness. It is clear that following the financial crisis some sectors of the private sector lacked the ability to pay and unemployment rose or pay freezes were enforced. In the public sector following the banks rescue package and damage to government finances, the ability to pay is just as severe.

Of course, many would rather keep their jobs and accept a pay freeze but, as the climate has changed to spring, so have the expectations of fairness. We know from the past that pay freezes have no long term effect and that as the good times return employees will try to regain the losses of the past, to regain their differential with other employees. As we found in the winter of discontent, pay freezes are not sustainable. This is why in banking freezes on bonuses that generated £2bn have now ended. To continue them may have caused more long term damage to our financial institutions. Continued pay freezes may have a similar effect on our economy.

Fairness is likely to be at the centre of future pay negotiations in both the private and public sectors and, as the government spends a record amount on repairing potholes after the big freeze, one cannot help wondering if this pothole can be shored up so easily.