Tory policies 'have failed to break inflation-pay link'

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The Independent Online
DESPITE 13 years of free market policies, the Government has failed to break the link between inflation and pay, according to analysis published today.

There is still a close relationship between wage settlements and the cost of living, Incomes Data Services asserts in its latest study.

A separate report, also out today warns that, while the level of pay settlements has halved over the past 18 months, further substantial reductions are unlikely.

Incomes Data Services argues that not only do most private-sector employers report that the cost of living is an important factor in pay determination, but that inflation protection is still built into a number of major wage deals.

Industrial Relations Services says that the median pay increase is now around 4.3 per cent and is likely to remain in the range between 3 and 4 per cent in the coming wage round - near the expected inflation rate. In its annual survey of pay prospects, IRS reports that employers are planning to settle at lower levels than last year, although a quarter expected to award the same increase.

IRS argues that the most important upward pressures on pay are labour productivity and inflation and the most important downward pressures are the inability to increase product prices, followed by poor corporate performance. More than a third of the 280 employers in the study said that productivity was rising, but most gains had been achieved through job losses.

The IDS report says that, while the Confederation of British Industry contends that non-inflation factors are increasingly influential in wage determination, some 54 per cent of respondents to the CBI's Pay Databank Survey said the cost of living was a 'very important' pressure. IDS researchers say that unions aim for rises at least in line with inflation to maintain members' living standards.

IRS Pay and Benefits Bulletin; annual pay survey published by Industrial Relations Services, Eclipse Group, 18-20 Highbury Place, London N5 1QP.

IDS Report 624; published by Incomes Data Services, 193 St John Street, London EC1V 4LS.