As the NHS is the latest employer to seek a three-year pay deal. James Brockett asks whether the stability promised by long-term agreements offsets their disadvantages
26 June 2008
No one can predict where the economy is going over the next three years. But, for public-sector employees at least, it’s increasingly likely that their pay will be predetermined over such a period.
The proposed settlement on NHS pay, accepted by the biggest unions, sets out rises of between 2.25 and 2.75 per cent for the next three years, while a similar deal for teachers caused the National Union of Teachers to strike in April.
The prime minister certainly supports long-term deals. In January he said that they “send the best possible message about long-term inflation and about stability” and allow workers to plan ahead “knowing exactly what their income is likely to be”.
Is setting pay for longer than a year really a useful tool and, if so, why aren’t more private-sector employers using it?
“The obvious advantage for employers is stability,” according to Gill Bellord, director of pay, pensions and employment relations at NHS Employers. “It removes doubt from your financial planning and means that talks [with trade unions] can be about things other than pay.”
The stability argument should also carry weight for staff, who will be able to predict their pay packets with confidence. But this ignores rising inflation. With the latest retail price index (RPI) showing inflation at 4.3 per cent, setting increases in stone is risky.
For this reason, unions in the NHS insisted on a clause whereby the independent pay review body could re-open talks if it judged that there had been a “significant and material” change in economic conditions.
Mike Jackson, Unison’s lead negotiator for the NHS, says: “None of the parties has agreed what ‘significant’ means, but if inflation continues to rise at its current rate we will be going back next year and asking the review body to re-open talks.”
Of course, such a clause has to work both ways, with employers able to react if inflation is lower than expected. So the clause must be reserved for extraordinary circumstances if a deal is to be meaningful.
Another advantage of a long-term deal is that staff can avoid the delays in implementing pay rises that occur when there are protracted negotiations – which is almost always in the case of the NHS, says Jackson.
“The pay review body reports in March and then the government has to make a decision. It rarely does so in time to allow pay rises on time on 1 April,” he says.
With so many unions involved in the NHS talks (not only Unison but also the Royal College of Nurses, the GMB, Unite and other groups for midwives, radiographers and physiotherapists), it’s no wonder that a three-year deal is widely seen as desirable.
But do these benefits carry over into the private sector? It depends on the industry you are in, according to Peter Reilly, director of HR research and consultancy at the Institute for Employment Studies.
“The private sector is different because you may or may not have predictable levels of profit and what you pay is driven by the market,” he says. “In the public sector you need worry only about affordability and inflation.”
Long-term agreements have still proved a useful tool in traditional industries, particularly where there is a strong union presence.
A typical deal might see the second or subsequent years linked to the RPI, Reilly says. “I have heard union leaders say that indexing is often hard to sell to workers,” he points out. “They see that the role of the union is to fight for a better wage rather than one that is simply linked to prices.”
Reilly adds that some firms would pursue sub-inflation deals over several years “if they think they can get away with it”.
Stephen Moir, president of the Public Sector People Managers’ Association and director of people and policy at Cambridgeshire County Council, says he supports the principle of a long-term deal because it offers stability.
The latest example of this in local government, running from 2004-07, has proved successful, he says, but consistently sub-inflation deals in the public services are a concern.
“It’s already causing recruitment and retention problems.
If you were a private- or voluntary-sector worker considering a move to public services and you saw there was little chance of reasonable pay increases, it would act as a disincentive.”
The government’s use of the consumer price index (currently 3.3 per cent) as a measure of inflation in this area rather than RPI (4.3 per cent) is “flawed” because it ignores some of people’s biggest outgoings, he adds.
Charles Cotton, CIPD adviser, reward, says it’s understandable that long-term settlements have a role in public policy as the government looks to “tighten its grip” on public-sector pay.
He adds that it would be interesting to see if there would be more long-term pay deals in the private sector, but is not convinced this would be the case.
“I think unions are becoming more concerned about inflation.
From an employer’s perspective, we are looking at an uncertain economy over the next 36 months,” Cotton says. “Firms will want the freedom to react to that by having annual deals for the foreseeable future.”
Going the distance In the public sector…
NHS: The proposed deal will pay staff 2.75 per cent in the first year, followed by 2.4 per cent in 2009-10 and 2.25 per cent in 2010.
Teachers: The three-year deal of 2.45 per cent in the first year, 2.3 per cent in the second and 2.3 per cent in the third led to industrial action by the NUT.
… and in the private sector
Shell haulage contractors recently ended strike action by tanker drivers by offering a 14 per cent increase over two years.
Virgin Atlantic signed a two-year deal with its cabin crew in January that awarded 4.8 per cent in the first year and the value of inflation (RPI) in the second.
Other firms with two-year deals include BT, Royal Mail and Ford.