No need to panic about Ford's offer

Has Ford set a new pay benchmark with its inflation-beating offer to UK employees? Ford regards its job as to set pay levels appropriate to its own operations and local conditions; it doesn't care a fig for what ministers think. There have been tremendous strides in productivity at Ford's UK plants, which are not far behind those in Germany. The pay offer is not a charitable reward for effort but a self-interested move to forestall unrest on production lines that have been pushed hard in recent years.

Time was when the annual Ford settlement was the bellwether for the pay round. The fact that unions have turned down 4.75 per cent has understandably sent shivers down the spines of those with long memories. If Ford's offer were to be copied across the country, the surprise fall in retail price inflation to 3.2 per cent in October announced yesterday would turn out to be a blip. In reality, however, the Ford settlement is more likely to show that the going rate has all but gone as a concept, losing much of its punch in today's flexible labour market. The latest earnings figures show a very sharp divergence between manufacturing and services.

Underlying earnings in manufacturing rose by 4.25 per cent in August and September, but by only 2.5 per cent in services. There is marked divergence within these sectors, too. In manufacturing, annual earnings growth till September was as low as 2.5 per cent in textiles, but 4.4 per cent in the car industry. In services, earnings growth was 1.3 per cent in hotels and restaurants but has been rising at 4.5 per cent in the wholesale trade.

Much more important than the "going rate" for pay increases is the rate of inflation itself. Pay settlements have all risen in the course of the year, as negotiators seek to ensure that wages do not fall behind inflation. The new and startling fall in retail price inflation could reverse the trend, if sustained.

The divergence of settlements between industries suggests that successful companies operating across national boundaries will pay better than purely domestic companies operating in Britain's deregulated labour market, where collective bargaining has faded away.

At Ford, there is only the loosest of linkages between pay settlements in the various European centres. But any company operating throughout the Continent is accustomed to dealing in an adult way with works councils and centralised pay bargaining, and like Ford will be prepared to cut a generous deal with unions when it suits. The difference now is that the rest of industry no longer has to panic when that happens.