Independent survey challenges Treasury 'complacency'

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The Independent Online

Pay settlements are continuing to climb steadily, according to an influential survey published this morning.

Pay settlements are continuing to climb steadily, according to an influential survey published this morning.

Most pay increases effective since July have been in the 3 to 4 per cent range, and about three quarters of the total are above 3 per cent. This is an increase from the three-fifths above 3 per cent in the April to June quarter, according to pay specialists Incomes Data Services.

Its report concludes: "The gradual upward trend is continuing, driven by the rise in inflation and by skills shortages in areas such as transport and construction."

It criticises the Treasury for claiming, in evidence to public sector pay review bodies, that pay settlements have fallen over the past year. The claim is based on a statistical sleight of hand, according to IDS. The report also challenges the Treasury's claim that public sector pay has kept pace with the private sector during the 1990s, pointing to clear evidence of a widening gap when bonuses and faster promotions in the private sector are included.

The warning about the upward trend in settlements, the second month running IDS has drawn attention to emerging pay pressures, comes ahead of official figures on jobs and earnings due on Wednesday. Signs of inflationary pressure arising in the jobs market could be the trigger for the Monetary Policy Committee, chaired by Sir Eddie George, to vote for higher interest rates.

George Buckley, UK economist at Deutsche Bank, said: "The labour market is crucial. Earnings growth is likely to climb to 5 per cent plus next year and will soon be above the Bank of England's concern level."

The summer months see relatively few settlements, but October is one of the busiest months for negotiations. The latest headline inflation figure of 3.3 per cent is expected to form the starting point for the forthcoming pay round.

Today's IDS report says: "The trend has been steadily upwards over the course of 2000 from a low point at the beginning of the year, which was primarily due to the record lows in inflation last autumn."

Separately, the Liberal Democrats have published new proposals for the reform of the MPC. These include: Six-year non-renewable terms, to ensure committee members' independence; publication of the terms of reference for their appointment and formal confirmation hearings by the Treasury Select Committee. The Liberal Democrats also call for stronger links between MPC members and different UK regions and industrial sectors.

Matthew Taylor, the party's shadow chancellor, said: "The Chancellor refuses to tell us how he appoints MPC members, yet their decisions affect every family and business in Britain."