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 have been running at between 2% and 2.5% over most
of the last year. This level of settlements is well below the long-run median of between 3%
and 3.5%.
Average pay settlements
2.5
2.25
2
% increase
2
1.9
1.75
1.5
1
0.5
0
Whole economy
Public
Private
Community /
voluntary
Source: Labour Research Department, settlement sover year to September 2015
Since April 2010, a huge gap opened up between private and public sector settlements that
saw private sector settlements running at a rate at least double that of the public sector for
almost five years. This year, major public sector deals such as the 2.2% increase for NJC
local government staff in January 2015 have raised the average recorded across the public
sector to 1.9%. However, private sector rates are predicted to return to rates double that of
the public sector over the coming year, with private sector employers expecting settlements
of 2% over 20151 while public sector rates are forcast at 1% to March 2016 and voluntary
sector rates are forecast to average 1.5%2.
1
Pay forecasts for the private sector, February 2015, XpertHR
2
CIPD, Labour Market Outlook, Summer 2015
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. Over recent months, the private sector rate has accelerated sharply while
the public sector rate has flattened out. In August 2015, the rate across the economy was
3.2%, private sector growth was 3.8% and average public sector wages rose by 0.4%.
% 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
Private sector
1.5
Public sector
1.0
0.5
0.0
-0.5
Aug
14
Sep
14
Oct
14
Nov
14
Dec Jan 15 Feb
14
15
Month
Mar
15
Apr May
15
15
Jun Jul 15
15
Source: Office for National Statistics, Labour Market Statistics, Septembe 2015
Forecasts of average earnings predict that growth will stand at 3.6% by 2016, 3.9% over
2017 and 2018, 4.1% in 2019 and 4.4% in 2020, as set out in the graph below3.
% annual growth
Forecast average earnings growth
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2016
3
2017
2018
2019
2020
Office for Budgetary Responsibility, Economic and Fiscal Outlook, July 2015
2
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 of National Statistics website by clicking here
ASHE data on changes in median gross annual pay for full-time employees
Job Type
All employees
Managers, directors and senior officials
Corporate managers and directors
Other managers and proprietors
Professional occupations
Science, research, engineering and technology professionals
Annual % change
2013/14
0.1
0.7
2.0
2.5
1.1
0.3
Health professionals
-0.3
Teaching and educational professionals
1.0
Business, media and public service professionals
Associate professional and technical occupations
Science, engineering and technology associate professionals
Health and social care associate professionals
Protective service occupations
Culture, media and sports occupations
Business and public service associate professionals
Administrative and secretarial occupations
Administrative occupations
1.8
0.2
1.0
-0.6
-0.7
1.4
0.7
1.8
2.1
Secretarial and related occupations
2.1
Skilled trades occupations
0.9
Skilled metal, electrical and electronic trades
0.8
Skilled construction and building trades
Textiles, printing and other skilled trades
Caring, leisure and other occupations
Caring personal service occupations
Leisure, travel and related personal service occupations
2.5
0.5
-0.6
0.2
-2.7
Sales and customer service occupations
0.8
Sales occupations
1.5
Customer service occupations
-0.1
4
4. Earnings growth by region
The Annual Survey of Hours Earnings provides a breakdown of earnings growth right down
to the level of parliamentary constituency.
The full set of tables for workers within a region and constituency can be found at
http://www.ons.gov.uk/ons/rel/ashe/annual-survey-of-hours-and-earnings/2014-provisionalresults/2014-provisional-table-9.zip
The full-time gross pay set out in table 9.7 will frequently provide the most common basis for
comparison with UK rates or specific groups of UNISON members.
An interactive map summarising median earning levels across the UK’s local authorities is
made available by the Office of National Statistics at
http://www.neighbourhood.statistics.gov.uk/HTMLDocs/dvc126/index.html
(Please note that this map does not function on older browsers)
The Equality Trust has also produced a summary of regional pay levels in the report set out
at
http://www.equalitytrust.org.uk/sites/default/files/attachments/resources/A%20Divided%20Bri
tain.pdf
Data on the proportion of employees paid below the living wage is also available by
parliamentary constituency at
http://www.tuc.org.uk/sites/default/files/House%20of%20Commons%20LW%20data.xlsx
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
5. Earnings of low-paid staff
The adult minimum wage is set to rise to £6.70 an hour on 1 October 2015, while the “living
wage” defined by the Living Wage Foundation/Citizens UK was raised to £7.85 an hour in
2014 and the Greater London Authority put the living wage in the capital at £9.15.
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 approaching 2,000 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.
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 at:
 Wales NHS,
 England Further Education Colleges,
 higher education sector
 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 local government employees on NJC
terms and conditions, the 2015 pay agreement resulted an a 8.6% rise for the lowest paid
staff and among staff on Agenda for Change terms and conditions in NHS England the 2015
deal led to a 5.6% increase.
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.
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.
6
“National living wage”
In July 2015, the government announced in its emergency budget that it will 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 to come into force in 2016 will be £7.20 an hour
and the government has set out the expectation that the rate will rise to 60% of median
earnings by 2020, which is likely to lead to a rate in excess of £9 an hour.
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 July 2015 budget,
which announced cuts to welfare benefits valued at £12 billion.
Analysis by the Institute for Fiscal Studies4 of the net impact of the changes makes the key
observation below:
4
Institute for Fiscal Studies, An assessment of the potential compensation provided by the new ‘National
Living Wage’ for the personal tax and benefit measures announced for implementation in the current
parliament, September 2015
7
“Among the 8.4 million working age households who are currently eligible for benefits
or tax credits who do contain someone in paid work the average loss from the cuts to
benefits and tax credits is £750 per year. Among this same group the average gain
from the new NLW, is estimated at £200 per year (in a “better case” scenario). This
suggests that those in paid work and eligible for benefits or tax credits are, on
average, being compensated for 26% of their losses from changes to taxes, tax
credits and benefits through the new NLW.”
In addition, research commissioned by the TUC using the IPPR tax-benefit model looked at
the combined effect of the budget from changes to Universal Credit work allowance, the
benefit freeze, minimum wage, personal income tax allowance and higher rate income tax
threshold.5
This analysis found that the net results will be a fall in the annual income of the poorest 40%
of working households. Between 2015/16 and 2020/21, the average loss for the poorest
20% of working households will be £460 a year.
Research by UNISON has focused particularly on the effects of the drastic changes made to
entitlement to working tax credit6 through the combined effect of changes to the threshold for
qualifying and the amount payable as income rises. The net result on income varies
markedly according to individual circumstances, but the research shows that many suffer
losses worth over a thousand pounds a year. For example, a single minimum wage earning
family composed of a couple and one child are set to see a net annual loss totalling almost
£1,300.
For more detailed figures on the impact of tax credit cuts, click on this report - Don’t take the
tax credit
5
TUC, July Budget 2015 Reforms – Impact on households, September 2015
6
UNISON, Don’t Take the (Tax) Credit, September 2015
8
6. Earnings of high income groups
The graph below shows the median growth rate in remuneration of FTSE 100 directors over
the last four years. Averaging 6.75% during the years of the public sector pay freeze, their
remuneration (composed of basic pay, bonuses and share options) grew by just under 14%
in the first year of the 1% pay cap and 21% on the second year.
Growth in FTSE 100 directors' pay
Growth in remuneration
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2011
2012
2013
2014
Source: Incomes Data Services
The average remuneration package for FTSE 100 chief executives was worth £4.96m in
2014, which was 183 times the average workers’ salary7. The main factor in the rapid growth
of chief executive remuneration was down to long-term incentive plans, which enable them
to draw massive personal gains from increases in share prices.
The same pattern has been apparent in pension entitlements, with the latest TUC study8
showing that the average FTSE 100 directors’ pension entitlement stands at £259,947 per
annum, which is 25 times the average worker’s pension of £10,452. In addition, while the
normal pension retirement age has been pushed toward 65 across much of the economy,
the most common normal retirement age for directors stands at 60. This continued the trend
of the last decade, which has seen chief executive pay increase by about 500% while pay for
ordinary workers pay has gone up by 20 % before taking into account the effect of inflation.
The contrast between public sector pay and income for chief executives and company
profits across the UK is illustrated by the graph below.
7
The High Pay Centre, August 2015
8
TUC, PensionsWatch 2013
9
Pay comparison
25.0%
Growth rate
20.0%
15.0%
10.0%
5.0%
0.0%
Public sector pay cap
Company profits *
FTSE 100 chief exec pay **
Sources:
* Corporations' operating surpluses between 2013 and 2014 (Office for National Statistics, Quarterly National Accounts, June 2015)
** Growth in median FTSE 100 chief executive remuneration between 2013 and 2014 (Incomes Data Services, Directors Pay Report, October
2014)
This pattern also continues the long term trend examined by the TUC9, which found that the
proportion of value produced by the economy going to wages dropped from 59% to 53%
over the three decades to 2008, while the profit share grew from 25 to 29%.
9
TUC, Where Have All the Wages Gone?, H.Reed and J.M.Himmelweit
10
7. Latest pay settlements
Average pay settlements by sector
Sector
Average reported pay settlements
Across economy
2.0%
Private sector
2.25%
Public sector
1.9%
Not for profit
1.75%
Energy & gas
1.6%
Water & waste management
1.8%
Retail & wholesale
2.0%
Transportation & storage
2.0%
Admin & support services
2.0%
Source: Labour Research Department, based on reported settlements in sector over last year
11
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: 2.2% from Jan 15 for staff above SCPs 10 and non-consolidated
payments ranging £325 to £100
EXCEPTION: Rises ranging from 8.56% to 2.32% for SCPs 5-10
Scottish Joint Council for
Local Government
Employees
1% from April 2014
ENGLAND: BASIC 1% from April 2015 for all except top pay band /
EXCEPTION: Bottom rate lifted to £15,100
Health - Agenda for Change
staff
SCOTLAND: BASIC: 1% from April 2014 / EXCEPTION: £300 staff
addition for staff on basic pay below £21,000 and living wage as bottom
point
WALES: BASIC: £187 non consolidated from December 2014 and 1%
from April 2015 / EXCEPTION: Living wage as bottom point
NORTHERN IRELAND: 1% for those on top of band from April 2014
Further Education (England)
Higher Education
Sixth Form Colleges
(England)
Police Staff (England &
Wales)
Police Staff (Scotland)
BASIC: 1% from August 2014
EXCEPTION: Bottom point raised to living wage
BASIC: 2% from August 2014
EXCEPTION: Lowest pay point raised to Living Wage for staff on 35 hour
week
1% increase from September 2014 and deletion of bottom two points on
the scales
2.2% or £400 (whichever is the greater) from March 2015
1% from September 2014
12