Pay Prospects 2004 Briefing

About this brief

February 2004
As more pay negotiations are done locally in Scotland it can be useful to have regional figures to supplement national UNISON briefings. In this brief you will find the latest figures on the following topics:

1. Labour Market Changes - UK & Scotland
2. Average Earnings – UK & Scotland
3. The Gender Pay Gap
4. Pay Prospects 2004
5. Economic Outlook 2004
6. Employment Law Developments 2004

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1. UK & Scotland Labour market changes

According to labour market statistics published on 11 February 2004 the UK labour market shows a falling unemployment rate and a larger fall than for some time in the claimant count. The number of people in employment is still rising, although more slowly, and job vacancies are a little higher than a year ago.

The ILO unemployment rate for the UK fell to 4.9 per cent in the period Oct/Dec 2003. This continues to be the joint lowest unemployment rate since records began in 1984. The number of unemployed people fell by 21,000 to reach 1.46 million.

The claimant count (Job Seekers' Allowance claimants) in the UK fell by 13,400 to 892,100 in January, the lowest level since September 1975. The employment rate for people of working age was slightly down, to 74.5 per cent, but the number of people in employment rose 5,000 over the previous three months, to 28.16 million. The fall of 22,000 full-time workers was more than offset by a rise of 27,000 part-time workers.

Total hours worked per week fell 4.1 million hours to 901.7 million hours. This was wholly due to falls in the average hours per week worked by men.

The average number of job vacancies for the three months to January 2004 was 571,900. This was 6,600 more than a year earlier.

Fig 1. UK and Scotland Claimant unemployment figures Oct 2003-Dec 2003

Source: ONS

 Fig 2. UK and Scotland ILO unemployment figures Oct 2003-Dec 2003

Source: ONS

The quarterly workforce jobs by industry figures, also released in December 2003, revealed the changes by industry in the year to September. While previously the public sector was the main generator of new jobs, the latest data show that construction and finance and business services together generated 204,000 jobs against 153,000 in public sector areas. The total net gain in jobs was 239,000.

Scottish Labour market changes

Latest Labour Force Survey data over the year to December 2003 indicate employment and unemployment stable in Scotland.

Data for the three months to December 2003 show the seasonally adjusted employment rate at 73.7 per cent, down 0.5 percentage points on a year earlier. The seasonally adjusted unemployment rate was 5.8 per cent, down 0.4 percentage points on a year earlier.

The seasonally adjusted claimant count was down in the year to January 2004.

The seasonally adjusted Labour Force Survey estimate of employment in Scotland was 73.7 per cent in the October to December 2003 period, down 0.5 percentage points on the same period a year earlier. The employment level was 2.38 million in the October to December 2003 period, up 4,000 on the same period a year earlier.

Seasonally adjusted employee jobs figures were unchanged in the quarter to September 2003.

The seasonally adjusted unemployment rate in Scotland was 5.8 % in the October to December 2003 period, down 0.4 percentage points on the same period a year earlier. The rates for men and women in October to December 2003 were 7.0 per cent and 4.5 per cent respectively.

Fig 3. Scottish Local Area Claimant Count (Dec 2003)

Source: ONS

 The seasonally adjusted claimant count rate in January 2004 was 3.6 per cent, down 0.1 percentage point from December 2003, and down 0.1 percentage point since January 2003. The seasonally adjusted number of claimants in January 2004 was 96,000, down 1,700 on December 2003, and down 3,600 since January 2003. The not seasonally adjusted number of claimants was 105,900 in January 2004.

The claimant count as a proportion of the resident working age population was lowest in Aberdeenshire and the Shetland Islands, at 1.4 per cent. It was highest in North Ayrshire, at 4.9 per cent. This is identical to last years figures for the same period.

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2. Average Earnings UK & Scotland

In the three months to December 2003, whole economy average earnings, including bonuses, increased by 3.4 per cent over the same period a year ago, down 0.1 percentage point from the November 2003 rate. Excluding bonuses, the increase was 3.6 per cent, unchanged from the previous month.

The corresponding figures for the main UK industry sectors were:

Manufacturing
3.4 per cent including bonuses, unchanged;
3.3 per cent excluding bonuses, unchanged;.

Service industries
3.4 per cent including bonuses, down 0.1 percentage point;
3.6 per cent excluding bonuses, down 0.1 percentage point;

Public sector
4.4 per cent including bonuses, down 0.4 percentage points;
4.4 per cent excluding bonuses, down 0.4 percentage points;

Private sector
3.2 per cent including bonuses, unchanged;
3.3 per cent excluding bonuses, unchanged.

Average annual earnings of all full-time employees rose to £25,170 in April 2003, according to the latest New Earnings Survey for April 2003. Average gross annual earnings for full-time women rose above £20,000 for the first time to stand at £20,314, compared to £28,065 for men. Full-time female employees saw an increase in annual earnings of 0.5 percentage points more than that for men (3.5 per cent, compared to 3.0 per cent respectively). A key finding of the NES was that the gender gap narrowed by a full 1.0 percentage point between April 2002 and April 2003.

Average gross weekly earnings of all full-time employees on adult rates working a full week in April 2003 were £476. The median was £394 a week. The average for men was £525 (up 2.2 per cent on the previous year), and the average for women was £396 (up 3.3 per cent). The average working week for full-time employees was 39.6 hours, of which 1.6 hours consisted of paid overtime.

 Fig. 4 UK Average Earnings (April 2002 – April 2003)

Source: New Earnings Survey

Fig. 5 Scotland Average Gross Weekly Earnings (April 2002 – April 2003)

Source: New Earnings Survey

Fig 6. Full-time Average Weekly Earnings by Occupation 2003

Source: NES (uprated by LRD January 2004)

Earnings by region
Gross weekly earnings were by far the highest in London at £637 a week in April 2003. The next highest was the South East at £506 a week. London's high levels are largely due to the fact that a high proportion of London's workforce is employed in higher-paying industries and occupations and also because many employees are entitled to allowances for working in the capital. Many of the highest paid people in the country are working in the City of London or its offshoot at Canary Wharf.

After the Southeast the next highest region is the East, with average earnings of £476 a week. This region includes Essex, which is really part of the South East in terms of earnings. Many parts of both the private and public sector now pay some form of Southeast allowance as well as London allowances.

After those three higher paying regions there is not a great deal of variation that is intrinsically 'regional'. Remarkably, average earnings in the West Midlands, Scotland, the Northwest and the Southwest are all very similar, despite all the varied inputs that make up the average. It is worth noting that some of the regional variation that does occur will reflect differences in occupational and industrial structures in the regions, which would imply that differences in pay rates are probably even smaller.

Fig 7. UK Regional Average Gross Weekly Earnings

Source: ONS

Within Scotland there was significant differences between the different regions in terms of average weekly earnings. Workers in Glasgow experienced one the largest percentage increases in their weekly earnings in the year between 2002 and 2003, with a 5.7% increase. This figure is a substantial improvement on the comparable figure for 2001-2002 when Glasgow workers only experienced a rise of 0.9% in their weekly earnings. However, average weekly earnings for workers in Glasgow still lags well behind the earnings of workers in areas like Aberdeenshire and the City of Edinburgh. Only workers in London and the Southeast earn more in average weekly terms than workers in these two Scottish regions.

 Fig 8. Scotland Average Gross Weekly Earnings April 2002 – April 2003

Source: ONS

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3. The Gender Pay Gap

The latest figures from the New Earnings Survey reveal that the UK gap between full-time men's and full-time women's hourly earnings (excluding overtime) narrowed by 1 per cent in 2003. This was slightly above the trend rate of a very gradual 0.5 percentage point narrowing each year over the last twenty years and follows a slight widening in the gap last year. The main reason for the greater narrowing in 2003 was women's average basic pay increasing at a greater rate than mens.

Women make gains on basic pay

The 2003 NES shows that average hourly earnings excluding overtime for full-time women are £10.56 compared to £12.88 for full-time men. This means the gender pay gap is currently 18 per cent, which is 1 per cent narrower than in 2002. The greater narrowing in 2003 was mainly the result of full-time women's average basic pay increasing at a faster rate than full-time men's (3.9 per cent compared to 2.6 per cent).

Larger gap on weekly earnings

Comparing average weekly pay in 2003, the gap between the average earnings of full-time men and women was wider at 24.6 per cent. This is partly because men are more likely to receive extra payments on top of basic pay such as overtime pay, shift pay and bonuses. While full-time women earned an average total of £396 a week, full-time men earned an average £525 a week in 2003. These totals include additions to basic pay worth £19.4 a week for full-time women compared to £53.6 a week for full-time men.

Slight improvement for part-time women

The group which experienced the highest increase in hourly earnings (excluding overtime) in the year to April 2003 was part-time women. Their average earnings rose by 4.7 per cent, which resulted in a narrowing of the part-time gender pay gap by 1.5 percentage points in 2003. The gap between the hourly earnings (excluding overtime) of part-time women compared to full-time men is now 39.6 per cent, down from 41.1 per cent last year.

In Scotland the gender pay gap for full-time hourly earnings was down from 19% in 2002 to 16% per cent in 2003. In relation to full-time weekly earnings the gender pay-gap was down slightly from 24% in 2002 to 23% in 2003. However, overall, women's gross individual income in 2003, including income from employment, pensions, benefits, investments etc was on average 46 per cent less than men's were.

Whilst the long-term trend indicates that the gender pay gap will continue to reduce, it will do so at a slow rate. The gender pay-gap is also subject to quite large year on year changes, for example the widening of the gender pay gap in 2002 in the UK was due to the high pay rises paid to the top five per cent of male earners.

Fig 9. Measures of the Gender Pay-Gap 2003 (UK Figures)

Source: New Earnings Survey

 Research published by the EOC in March 2003 reveals that in the UK only 18 per cent of large employers and ten per cent of medium-sized employers have actually done a pay review or are in the process of doing one. The majority, 54 per cent of large and 67 per cent of medium-sized employers, do not plan to do a pay review at all.

 Fig 10. Scotland Male & Female Average Earnings (April 2002 – April 2003)

Source: New Earnings Survey

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4. Pay prospects 2004

2004 is expected to bring a considerable amount of diversity in pay awards, reflecting different levels of economic activity by sector, market pressures and recruitment and retention issues. Strong growth will be an upward pressure on pay while relatively modest inflation may well keep basic pay settlements around a key range of 2.5 to 3.5 per cent. The next rise in the National Minimum Wage, to £4.85 an hour from October 2004, will also have a significant impact through the year.

A strong labour market will be likely to raise the level of benchmarking in the economy and the use of market comparisons. It is anticipated that the debate over the 'war for talent' of the 1999/2000 period will be re-visited as skill shortages re-assert themselves. This might involve an examination of non-pay issues to retain staff, along with more of a focus on career development. Non-pay issues involve motivation, engagement and involvement, and these issues run in parallel with structural issues such as transparency and promotion policies.

Public sector pay 2004

It is anticipated that attempts will be made to rein back public sector headline settlements in 2004. There will be increasing pressure on public sector negotiators to peg back the level of settlements as the Government is concerned that in previous years relatively high review body recommendations, made early on in the year, had set the pace for other public sector groups. In this respect the increases due from April 2004 under the Agenda for Change deal in the NHS (worth close to 3.5%) will be influential.

Key pay issues in 2004

• Basic pay that is benchmarked against local and industry levels may well move more quickly in tight labour markets
• The campaign for employers to engage with equal pay auditing will be re-emphasised in the Spring
• Collective bargaining which links pay arrangements to pensions reform will be more common
• Public sector pay rises will be squeezed under more stringent Treasury targets

Despite this control of public sector pay, pay structure reform, equal pay and harmonisation will remain at the centre of change.

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5. Economic outlook for 2004

Economic growth in 2004 is anticipated to be the strongest for several years. In his pre-Budget speech on 10 December 2003, the Chancellor of the Exchequer, Gordon Brown, said that he now expected growth in 2003 to be 2.1 per cent, with economic growth in 2004 forecast to be between 3 and 3.5 per cent. He also said that the Treasury expects growth in 2005 to be between 3 and 3.5 per cent.

Inflation
Despite the higher economic activity the outlook for inflation in 2004 is relatively benign. The all items Retail Price Index ended 2003 at 2.8 per cent. City forecasting institutions predict that RPI inflation for 2004 will run approximately in the 2.5 to 3 per cent range. In his pre-Budget speech, the Chancellor confirmed that he wants the Bank of England to focus on the new Consumer Price Index rather than RPIX and confirmed that the target will be 2 per cent. Furthermore, he said that 'because discipline in pay setting is essential in both private and public sectors, I have written today to Public Sector Pay Review Bodies informing them that our inflation target is 2 per cent.'

Fig 11. Retail Price Index 2003

Source: ONS

What seems highly improbable is that people involved in pay negotiations will be enamoured with a new index (the CPI) that excludes not just mortgage interest payments (as does RPIX) but also excludes council taxes, housing depreciation and buildings insurance. It is the experience of those who have monitored pay agreements over the past thirty-odd years that the all items measure of inflation, the RPI, is the one universally used in pay awards and pay bargaining. In almost all long-term pay agreements, the all items RPI is the quoted source of the uprating in year 2 or year 3. Over the years, Governments have tried to influence pay decisions with new indices, such as RPIX, and earlier the TPI – the tax and price index – but neither of these had any noticeable impact on decisions.

Affordable housing

The shortage of affordable housing for essential public sector workers, a feature of the housing market in London and the South East for a number of years, has now began to impinge on Scottish public sector and other low-paid workers. Recent research, analysing house-price inflation against pay-inflation, shows that this phenomenon is most apparent in Edinburgh where average house prices rose 85% between 1999 and 2003 against a rise in average earnings of only 18% over the same period. However, the same pattern is repeated throughout regional housing markets in Scotland.

The figures below confirm that essential public service workers in Scotland including nurses and social workers are being priced out of the areas where they work. Research by the banking firm HSBOS revealed that 49 Scottish towns are too expensive for essential workers to buy homes in them. Unfortunately, this trend seems set to continue with figures that show house price inflation in Scotland set to rise a further 12% in 2004.

Fig 12. House price inflation against average earnings rise 1999-2003

Source: Scotland on Sunday (15/02/04)

Key

¶ Average house price inflation 1999-2003 (%)

· Average earnings rise 1999-2003 (%)

¸ Gap between typical maximum mortgage and average house price 2003

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6. Employment Law Developments 2004

There will be a raft of employment legislation introduced in 2004 including two bills published by the UK Government at the tail end of 2003. The Employment Relations Bill, introduced in the Commons on 2 December, is the result of the Government's review of the Employment Relations Act 1999. This Bill should become law in 2004 and among other things the Bill contains:

• Measures to improve the operation of the statutory recognition procedure
• A simplification of the law on industrial action ballots and ballot notices
• Provisions to increase the protection against the dismissal of employees taking official and lawfully organised industrial action by exempting 'lock-out' days from the eight week protected period
• Measures to improve the operation of some individual employment rights, such as a clarification of the role of the companion in grievance and disciplinary hearings
• A clause to ensure that the protection against unfair dismissal for employees with less than one year's service who request flexible working in line with other legislation on working parents.

A Disability Bill was published on 3 December. Its measures include a new positive duty on public bodies to promote equality of opportunity for disabled people; the extension of the Disability Discrimination Act to cover almost all activities of the public sector, including such functions as issuing licences; and the expansion of the scope of the DDA to bring more people diagnosed with the progressive conditions of HIV, MS and cancer within its remit. The UK Government also began a major consultation exercise on revision of the Employment Tribunal Regulations and Rules of Procedure in December 2003. These rules will be introduced in 2004.

Such changes aside, probably the major employment event of 2004 will be the introduction of the rules on statutory grievance, discipline and dismissal procedures contained in the Employment Act 2002. These new rules will fundamentally change the way in which the law on unfair dismissal applies in relation to procedural breaches and will, without a doubt, require many organisations to fundamentally review their practices in this regard. As a consequence, 2004 will see a revision of the ACAS code of practice on discipline and grievance. In particular one of the more difficult tasks ahead will be marrying the minimal standards arising from the 2002 Act with the best practice guidance that has always been contained in the ACAS code.

Having opposed the introduction of a National Minimum Wage for 16 and 17 year olds since the inception of the NMW in April 1999, the UK Government appears to be reconsidering its policy on youth pay. In March 2003 the Government accepted the Low Pay Commission's recommendation that it should consider in detail the introduction of a minimum wage rate for 16-17 year olds and to report by February 2004 so that a rate could be introduced by October 2004.

A major change to discrimination law will move a step closer in 2004, with the publication of the draft regulations outlawing age discrimination. However, these rules will not come into effect until 2006. The same also applies to the new rules on information and consultation, which will not come into force until 2005.

 All of this legislative change is leaving aside the new transfer regulations, which are 'likely' to be published in 2004. However, as the publication of new TUPE regulations have been 'likely' for over five years now, it would perhaps be wise not to count on them being published in 2004.

It is also expected that we may see important developments on the European stage, potentially in the form of a Directive on agency workers, in 2004.

For Further Information Please Contact:

Matt Smith, Scottish Secretary
UNISON Scotland
UNISON House
14, West Campbell Street,
Glasgow
G2 6RX
Tel: 0141-332 0006
Fax: 0141 342 2835

E-mail: matt.smith@unison.co.uk