Public-sector pay deals start labour market wages war

Inflation-busting pay awards for state sector workers, part of the Government's plan to improve public sector services, are driving up private sector wages, a leading labour market analyst said today.

There is growing evidence of wage competition between the two sectors for staff at the lowest end of the pay spectrum, Incomes Data Services said. The report comes just days after official figures showed public sector wages rose at their sharpest rate for 10 years in April. IDS said public sector trade unions had succeeded in negotiating flat-rate payments for the lowest paid on top of the across-the-board percentage increases.

In some cases this had, in effect, established a minimum wage of £5 in some sectors ­ something the unions have campaigned for, but which has been resisted by the Government.

The lowest-paid NHS workers are getting a 4.7 per cent hike, council workers in England and Wales 4.3 per cent while manual workers in universities are getting as much as 5.7 per cent. In Scotland the unions managed to negotiate a four-year deal to take the lowest-paid council workers' pay to £5.02 an hour.

Ken Mulkearn, senior researcher at IDS, said there was intense competition in the retail, hospitality and fast-food sectors, for staff in the £3.70 to £5 an hour range. "The public sector is facing a problem in that people are leaving for jobs with comparable pay rates but with less hassle," he said. "We are talking about, say, care staff in local authorities leaving to work in supermarkets where the job is easier."

IDS said Tesco now paid checkout operators £5.02 an hour. "Public sector employers are having to respond by moving toward £5 an hour to compete for staff in the same labour markets," said Mr Mulkearn.

Rising levels of average earnings and an increasingly tight labour market are expected to be a key topic of debate at the next interest rate meeting of the Monetary Policy Committee in July. The "hawks" on the MPC will argue that, with inflation rising, retail sales at a four-year high and robust house price growth, the next move in rates should be up. However, the Confederation of British Industry said today its analysis of pay deals showed wages were stable in the services sector and falling for manufacturing workers. It said pay settlements in industry over the three months to May fell to 2.6 per cent from 2.8 per cent in April. Services sector wage growth was stable at 4.2 per cent.

Sudhir Junankar, the CBI's head of economic analysis, said: "Despite recent official earnings data, this news on pay is encouraging."