Fair Pay Fortnight - Scotland and the UK needs a pay rise

Scotland and the UK needs a pay rise. It's necessary for hard pressed workers and their families, but it's equally vital for the economy.

The next two week's will be Fair Pay Fortnight, a series of events across the country that will raise awareness about Britain’s cost of living crisis. Working people in the UK are seeing their living standards squeezed harder and harder every year. Workers in Scotland have lost nearly £2000 since 2010 and while jobs may be returning to the economy they’re increasingly low paid, low hours and low security.

This has happened because the economy has seen a big shift from wages to profits. You have to go back to the 1860’s for a pay squeeze as long as this one. If the wage bill had just kept up with inflation there would be £5bn more spending power in the Scottish economy. It is low wages that has delivered the slowest recovery recovery from recession since records began.

The UK government is also collecting £33.4bn less in income tax and national insurance than official forecasts suggested because of the lack of earnings growth in the UK, according to independent analysis in 'The living standards tax gap just got bigger', a report published today by the TUC. This analysis is based on the wages forecast made in June 2010 by the Office for Budget Responsibility (OBR). If earnings growth had been in line with the OBR forecast, income tax and national insurance receipts this year would total £308.4bn. But the Treasury is now expected to collect just £275bn. This could have delivered nearly £3bn of extra spending on public services in Scotland and is almost half the austerity cut on the Scottish Government budget.

Falling petrol prices may deliver a cut in the headline inflation rate, but it only masks the real pressures on family finances. Since 2007 the average rent for a Council House has increased by 26% and in the same time the wages of a Council Worker has increased by 8.3%. UNISON Scotland has published a series of reports in our 'Damage' series in which members describe in their own words the impact of low wages on them and their family.

Families have been plugging the gap by using savings or getting into debt. 30% of families say they have less than £500 put away, compared with just 14% in 2013. The scariest chart from the OBR report on the Chancellor's Autumn Statement shows just how much Osborne is relying on household debt to dig us out of the economic mess he has created.

Even among those suffering, the pain is not evenly spread. Women in low pay have a pay gap of 34.2% and young workers classed as low paid has more than tripled over the past four decades. As the Poverty Alliance has highlighted today, in work poverty in Scotland is growing, with almost two thirds of children in poverty living in working households. On pay rises, inequality is being compounded by what the CIPD calls a "tale of two workforces", with public sector workers most likely to see their pay held down.

In contrast, the wealth of the richest 1,000 people in Britain doubled to £519 billion since 2009, about two and a half times the annual deficit. FTSE 100 Directors had a 21% pay rise last year and now earn 123 times the average Scottish full time worker. In 2000 that ratio was 40 times. Put another way, they earned the average Scottish wage of £27,045 in just over two days of work last year.

David Cameron was making a somewhat belated pay rise pitch to the British Chambers of Commerce last week. In a TV reaction interview after the speech, one such fat cat couldn't stop laughing at the notion. That's why they are all queuing up to donate to the Tories already stuffed election fund. We are doing very nicely thanks - 5 more years please.

In Fair Pay Fortnight we will be developing these themes, making the case for greater fairness in our economic system. Scotland and the UK really does need a pay rise.

 

 

Britain needs good jobs and a pay rise

Britain needs a pay rise, not just to bring relief to hard-pressed workers, but also to drive a sustainable economic recovery.

That’s the message from the latest research and is particularly relevant to our members in Scottish local government, who are being balloted on industrial action over pay from next week. Their pay is the lowest, even across the hard pressed public sector, as they are asked to keep public services going against all the odds.

A TUC study on the living wage showed that women earn just 66p for every pound earned by men working full-time (which is a pay gap of 34.2%). One of the main reasons for this huge gender pay divide is the large concentration of women doing low-paid, part-time work. This has led to a majority of women working part-time earning less than the living wage in over 50 local authority areas across Britain.

It’s no better for young workers. The proportion of workers aged 21 to 30 who are now classed as low paid has more than tripled over the past four decades, according to new research from the ResolutionFoundation.  Almost three in ten (29%) are now low paid, equating to almost 1.5 million young workers. In 1975, the proportion earning low pay was less than one in ten (8%). This also explains why many young people are locked out of the housing market, with just 3% of buyers in June aged between 18 and 30.

Missing out on the claimed economic recovery is not limited to these groups. The Poverty and Social Exclusion in the United Kingdom project has revealed that 800,000 Scots were too poor to participate in basic social activities, more than 400,000 adults do without essential clothing and almost one-third cannot afford to heat their homes adequately in the winter. The majority of children in poverty come from small families with at least one parent in work – so much for the UK government’s ‘strivers and shirkers’ analysis.

Across the UK, the percentage of households below what the public considered a minimum standard of living has risen from 14% to 33% over the last 30 years. This is despite the size of the economy doubling, indicating the gap between rich and poor is increasing.

Low incomes are also linked to underemployment. The TUC’s analysis of the latest labour market data shows that while unemployment has fallen by over 400,000 since early 2012, under-employment has risen by 93,000. And at 3.4 million the current level of under-employment is over a million higher (46%) than it was before the recession. It also highlights that the numbers who want more hours in their existing jobs means that under-employment is still increasing. In UNISON, we see this in sectors like care, with nominal hours contracts becoming more prevalent.

The answer to what some economists call the productivity puzzle is that we have too many low-pay, low-skill and low-productivity jobs in low-investment workplaces. We need to rebalance the economy with an emphasis on creating good jobs and promoting fair levels of pay for everyone – not just those at the top.

Public service workers in the front line of the attack on wages

Tomorrow, UNISON’s local government members in England, Wales and Northern Ireland will be going on strike, joining with other public sector workers in their effort to secure a decent pay rise. In Scotland, local government workers have voted for industrial action by two to one in a consultative ballot and will be considering the next stage of their own pay campaign later this month.

Matt Sykes, at the Touchstone blog sets out why public service workers are taking action. He argues that it’s a wider manifestation of the anger and frustration felt by public sector workers over pay and living standards. Industrial action is the inevitable consequence when you have a government that makes announcements over pay, rather than engage in a meaningful dialogue. The declaration that pay restraint will continue until 2018 is another example of this.

UNISON’s Heather Wakefield sets out the local government case at the Public Finance blog with a damning set of statistics on pay and the long-term impact on pensions. Again, there have been no real talks and the employers have refused to join the trade unions in independent arbitration.

The TUC has published figures that show how the UK government has frozen or limited pay increases to well below the cost of living. This has left local government and other public service workers on average £2,245 worse off in real terms since this government came into office.

Concern about the standard of living stretches into retirement. Research published by Aviva indicates that a fifth of people in Britain believe they will have to “work until they drop” because they cannot afford to retire. Money worries mean millions of over-40s are expecting to carry on working until they cannot physically continue. Others are concerned about paying their day-to-day bills without the regular income from employment coming in.

An important element of current pay claims is the Living Wage. The final report of the independent Living Wage Commission, chaired by the Archbishop of York, Dr John Sentamu says that the number of people on low pay in the UK can be slashed by over 1 million by 2020. The Commission warns that, if the government does not support the voluntary extension of coverage of the Living Wage, some working families will continue to rely on emergency measures, such as food banks and unsustainable debt, to get by. Currently 5.2 million people earn less than the Living Wage in the UK and the majority of people in poverty are now in working households.

This message is reinforced in the largest study of poverty ever conducted in the UK. The Poverty and Social Exclusion in the UK (PSE) project details how, over the last 30 years, the percentage of households living below society’s minimum standard of living has increased from 14% to 33% – despite the fact that the economy has doubled in size over the same period. These findings seriously undercut the UK government’s claim to be lifting people out of poverty through work. Cuts to welfare benefits add to the low pay misery.

The Joseph Rowntree Foundation’s annual Minimum Income Standard report looks at how much people have to earn taking into account family circumstances, the cost of essentials and changes to benefits. This shows that a lone parent with one child now needs to earn more than £27,100, up from £12,000 in 2008. A couple with two children need to earn more than £20,200 each, compared to £13,900 each in 2008. Single working-age people must now earn more than £16,200, up from £13,500 in 2008.

Public service workers are at the front line of the attack on wages, while this government awards handouts to the super rich. Tomorrow is just the start of a fight back to keep workers out of poverty.

No recovery in living standards for working people

There is no recovery in the wages and living standards of working people since the rich and powerful crashed our economy.

A number of reports have analysed the latest data on household incomes and wages. The Scottish Government's paper highlights that the number of people living in poverty in Scotland increased to 820,000 last year. The 2012-13 figure, which accounts for 16% of the population, was 110,000 more than in the previous year. The number of children in poverty rose by 30,000 to 180,000.

The figures indicated:

• 16% of people (820,000) were living in relative poverty in 2012-13 - 110,000 more than the previous year and an increase from 14%.
• 19% of children (180,000) were living in relative poverty in 2012-13 - 30,000 more than the previous year an increase from 15%.
• 15% of working age adults (480,000) were living in relative poverty in 2012-13 - 70,000 more than in 2011-12.
• 15% of pensioners (150,000) were living in relative poverty in 2012-13, 10,000 more than the previous year and an increase from 14%.
• Typical income in Scotland in 2012-13 was £23,000, equivalent to £440 per week.

For some real stories behind the statistics you can read a survey, commissioned by UNISON's NHS Greater Glasgow branch. Nearly a third of respondents said they constantly struggled to pay household bills, with 11% falling behind on mortgages or rent. 17% were behind on council-tax bills, 15% on hire purchase payments and 20% on credit-card payments. Borrowing from family was common and 16% of workers used credit unions. 4% had used payday loans. 58% said they could not meet an emergency expense of £500.

The Scottish Parliament research unit (SPICE) has produced an interesting analysis of long term trends in Scottish household income. There is a lot of discussion about how wealthy Scotland is in the referendum debate. However, this tends to focus on GDP rather than the incomes of people that actually live in Scotland. This paper shows that the average level of disposable income per head in the UK is £16,791. Scotland comes in just below this at £16,267. However Scotland is catching up since devolution. Between 1997 and 2012 household income in Scotland increased by 27% as against 24% in the UK as a whole. Within Scotland we still have significant inequality. Glasgow City has the lowest level of disposable income with just over £14,000 per head, compared with just over £19,000 per head in Edinburgh.

Official UK figures from the ONS still show median and mean incomes in 2012-13 6% and 9% below their 2009–10 peaks respectively. This follows a period of slow income growth that began in the early 2000s. The net result is that the official measure shows both measures of average income no higher in 2012–13 than in 2001–02.

In 2012–13, 10.6 million individuals in the UK (17%) had a household income below the official absolute poverty line (e.g. below £272pw for a childless couple, net of taxes and inclusive of benefits). This is actually a poverty rate no higher than before the recession. However, when incomes are measured after deducting housing costs, the number below the poverty line (e.g. below £235pw for a childless couple) rose by about 600,000 in 2012–13 to 14.6 million (23%). This is about 2.0 million higher than in 2007–08.

Of course not everyone is suffering. The bankers in the City and their friends in the media may not have noticed growing poverty, because the share of post-tax income captured by the richest 1 per cent leapt from 8.2% to 9.8% in 2013/14.

There may be a modest economic recovery, but the official data shows that household incomes have not recovered, except for those who caused the crash. And they won't, until we see real wage growth.

 

 

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Sustained economic recovery needs wage growth

The much vaunted economic 'recovery' won't be sustained for workers until we see real wage growth. Despite optimistic UK government forecasts, there is little evidence that that is likely to happen.

Professor David Blanchflower, a former member of the MPC and CEP, and Stephen Machin have taken a detailed look at the evidence and have concluded that unless the division of economic growth becomes more fairly shared and productivity boosted to generate wage gains for all workers, then poor real wage outcomes for typical workers may be here to stay.

They argue that median wages seem to have become ‘decoupled’ from productivity growth because of rising inequality, which means that a growing share of the value from productivity growth is absorbed by pensions and higher salaries for top earners. For significant real wage growth to reemerge, productivity would need a sharp increase of the kind experienced much earlier in the UK recessions of the early 1980s and early 1990s. There are few signs of this happening, and the problem has been magnified by the UK’s dismal investment rates.

Even if productivity were to rise rapidly, the unequal division of wages from productivity gains to the top (like bankers’ bonuses) would need to be addressed. This is a point also made in the groundbreaking work of French economist Thomas Piketty, who argues that reductions in the top rate of tax encouraged senior managers to pay themselves more, further widening inequality.

Blanchflower also states that the economy is still well below full employment and there is a large amount of slack in the labour market. There is little evidence of widespread skill shortages, which would push up wages. Another important factor from a UNISON perspective is that public sector pay restraint with continuing redundancies reduces wage growth in a big sector of the economy.

For these reasons improved economic performance doesn't necessarily result in wage growth. As Blanchflower puts it, "Firms have started to perform better so their ability to raise pay levels may have increased slightly – but so far we see no evidence of any change in their willingness to pay. In line with our discussion of inequality, this does raise a key question: why, if nothing changes, wouldn’t they continue to keep any gains to themselves? It stretches credulity to believe that all of a sudden bosses will hand over pay increases to their workers when they have shown no inclination to do so for several years."

Taking a similar line, Simon Wren-Lewis from Oxford University argues that critics of the UK government should focus on the “wasted years” of 2010-2012, and on the fall in median incomes over the last five years. The economic issues for today and tomorrow, should be a focus on inequality. He concludes, "To sum up, the recovery is welcome: it is not an illusion, but neither does it atone for the sins of the past. Above all else, it must not lead to complacency. We have still a long way to go to repair all the damage caused by the recession. Even when that has been done, the problems that led to the financial crisis have not been fixed. We remain dangerously vulnerable to any future large negative demand shock."

Desperate attempts by the Chancellor to spin wage growth shouldn't fool anyone. Until there is real wage growth and serious efforts to tackle inequality, the recovery will be at risk. Wage restraint in the public sector simply adds to that risk.

 

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Public sector pay is actually lower than in the private sector

One of the regular media inquiries we get in the Bargaining and Campaigns Team is how we can justify higher wages in the public sector compared with the private sector. This ritual is usually played out when the ONS publish headline pay data that appears to show just that. I am also pre-empting similar arguments used by the Chancellor in justifying his pay policy in today’s budget.

Our response is usually, we are not comparing like with like, similar to my July 2011 briefing in response to an ONS paper and goes as follows:

• The figures exclude other benefits such as bonuses and other perks that are more prevalent in the private sector. The research is based on snapshot in April after the Jan-March bonus season.
• They exclude the self-employed.
• These are UK figures and in England many lower skilled and paid jobs have been outsourced to the private sector.
• The average age of public sector workers is higher and older workers are paid more.
• Public sector workers tend to have higher qualifications. In 2010, some 38% of workers had a degree or equivalent qualification in the public sector, compared with 23% in the private sector. Comparing the pay of these graduates flips the pay gap around, with public sector workers earning 5.7% less than those in the private sector.
• The key to the difference in pay is the higher proportion of higher-paid jobs in the public sector.
• Also within the two sectors, the gap between the highest earners - in the top 5% - and the lowest 5% of earners is greater in the private sector than in the public sector. This shows that public sector pay is fairer than the private sector.

Helpfully, you don’t have to take our word for this today. There is an interesting analysis of pay data by Professor Graham Cookson in ‘The Conversation’ hard evidence series. He makes similar arguments and adds the impact of working for large organisations that tend to pay higher wages. The public sector workforce is concentrated in larger organisations.

He concludes: “So who earns more? What is clear is that personal and job characteristics are far more important than whether you work in the public or private sector. Yet having controlled for all of these factors, the evidence points towards a small pay gap in favour of the private sector.”

So if you get any calls on this issue today – answers as above.

Low Pay in the Public Sector

Low and falling pay is ruining people’s lives and storing up a range of problems for our future. The New Economics Foundations report Raising the Benchmark: The role of public services in tackling the squeeze on pay (commissioned by UNISON) clearly lays out the extent of low pay in Britain. More importantly the report contains important recommendations to free people in work poverty.

At least one in five workers in the UK economy earn too little to live on (less than £7.47 per hour)
• More than half of individuals living in poverty live in a household where at least one adult works
• One million public service workers are on low pay: And it’s getting worse
• Workers on low and middle incomes are experiences the biggest fall in living standards since records began
• Average workers wages have fallen by £1300 per year under the coalition government
• Those in the public sector are on average £2073 a year worse off
• The report is full of really useful detail on the problems caused by increases in the cost of living alongside wage stagnation.

There is also an excellent section on the myth of the public sector pay premium. NEF also highlight IMF research which indicates that the impact of public spending on the rest of the economy is stronger than previously thought. “This means squeezing public services wages locks us into a more fragile economic future”

Recommendations
• Active support at all levels of government to ensure the living wage is paid by employers across public service supply chains, directly benefiting 1 million public service workers today.
• Government to lift the pay cap, which has resulted in pay in public services falling by more than £2000 a year on average in real terms since 2010.
• Policy action by government to establish robust fair wage resolutions determining benchmarks for employment conditions across public service supply chains.
• Active support by government for collective bargaining of pay and employment standards throughout public service organisations and businesses.
• Action by policy-makers, commissioners and employers to scrap zero-hours contracts in key sectors such as social care.
• Implementation of new indicators, such as mandatory reporting of top, middle and bottom pay by employers across public service supply chains.

The report is an excellent source of information to support campaigns for improved wages in the public sector and importantly, through better public sector procurement rules, across the wider economy.

Fat cats getting fatter

The latest IDS report shows that top Directors earnings increased by 14% in the last year while average earnings fell in real terms. The CBI has been noticeably quiet today about the need for public sector pay restraint!

The big increase came with a 58% rise in the value of vested long-term incentive plans (LTIPs) – share-based schemes linked to shareholder returns, but even basic pay increased by 4%. In contrast, average earnings across all sectors grew by 2.1% and have fallen in real terms for most of the past five years. Even more so in the public sector.

The median salary was £568,500, annual bonus £553,200 and vested LTIP awards £1.2bn. However, most listed companies’ annual accounts do not include vested share awards in the main table detailing with directors’ pay, making it difficult to spot. That will change with new reporting requirements.

Frances O’Grady, General Secretary of the TUC, said: “It’s one thing replacing bonuses with long-term incentive plans, but FTSE 100 companies are simply exploiting this change to make their fat cats even fatter. The time has come for legislation to put ordinary workers on the pay committees of companies. This is the only way to bring some sanity to the way in which directors are paid.”

Two year Scottish Government pay policy announced

The Scottish Government 2014-15 Public Sector Pay Policy will be a two-year policy for pay settlements over the period 2014-15 to 2015-16. While it only covers a limited number of public service employers, it is persuasive in other sectors.

The key features of the policy in each year are:

• A 1% cap on the cost of the increase in basic pay for staff above £21,000.
• The pay freeze on salaries over £80,000 is lifted and the 1% cap will apply. 
• All staff earning less than £21,000 per annum should receive a minimum pay uplift of £300 in each year, excluding any increase that may be paid for progression. Pro-rata basis for part-time employees.
• The Scottish Living Wage will continue to be applied. Details of how it is to be calculated will be in a later technical guide.
• Nothing in this policy is intended to interfere with pay progression arrangements and the cost of these is outwith the 1% cap. The Scottish Government is therefore not following the Chancellor on this issue.
• No Compulsory Redundancy agreements remain for the duration of their pay settlement in return for continued and, where appropriate, additional workforce flexibilities or efficiencies.

While it is a two year policy, agreements can be for one year. They can also be front or backloaded as long as within the overall cap.

It is of course disappointing that the Scottish Government has yet again followed the UK Government pay policy for most staff. This means a further 2% cut in real pay with the consequential impact on local economies. It is real wage cuts that have slowed recovery from the recession and resulted in a unprecedented shift of income from average wage earners to profits and the super rich.

It does have to be recognised that with wages making up 55% of the Scottish budget, that itself is suffering a 9% real terms cut, John Swinney's room for manoeuvre is limited. Some improvement in the weighting at the bottom end of the pay scale is welcome as is the ongoing commitment to the Scottish Living Wage. The no compulsory redundancy policy, all be it with strings, is also welcome, as is the refusal to follow the Chancellors planned attack on contractual salary progression in England. 

However, not all of these apply automatically to the largest pay groups in local government and the NHS. Local government is suffering from another real term budget cut that will no doubt be used as an excuse, yet again, not to apply the underpinning to low paid council staff.

OBR Forecasts and why it matters

The UK Office of Budget Responsibility (OBR) was created in 2010 to give an 'objective' assessment of the state of public finances. This requires them to forecast economic trends that could impact on public finances such as inflation, wage rises and tax. It is therefore very important to UNISON members these forecasts are as accurate as any look into the future can be. Sadly, their track record is not impressive so far.

In this context the Reid Foundation has published a helpful paper, written by Jim Cuthbert, on OBR forecasts from a Scottish perspective. The paper highlights a number of areas where the OBR has got its forecasts wrong and why.

I would add one more example to Jim's list, wage forecasts. I blogged in this in June:

"I recently came across this interesting assumption in the Office of Budgetary Responsibility’s budget forecast: “Whole economy wages are expected to grow by 1.4 per cent this year and around 2.7 per cent in 2014, rising gradually to 4.0 per cent in 2016”. This means the Chancellor’s revenues are dependent on a pretty dramatic increase in real wages as the table below shows. Hard to see where that revenue is coming from given continued pay cuts in the public sector."

The importance of this forecast is that the Treasury uses it for expenditure assumptions including pensions. If the forecast is on the high side, as most would say it was, then pensions are made to look more expensive than they really are. Sounds familiar?

Either way pay negotiators might want to include this forecast in pay claims. If it's good enough for the Treasury.........

Bumper Book of Government Waste

The tax cutting campaign group the Tax Payers Alliance have produced yet another one of their attacks on public spending. In their imaginatively title Big Book of Government Waste, they stick to their effective tactic of finding spending they don’t like at calling it waste. This year they have managed to reach a total of £120billion.


It’s a great laugh, mocking arts projects, awards ceremonies and councillor's lunches meanwhile, the Big Bumper Book of Private Sector Waste is still unpublished: The costs of failed privatisation, massive bonuses paid to chief execs for failure, billions wasted on PFI, private failures like Southern Cross and G4S and its Olympic security fiasco. As ever public sector workers terms and conditions are their first point of attack. Almost half of their waste total: £53billion comes from “overpaying on public sector pay and pensions”. This is not mistakenly overpaying. What they mean is that wages are too high in the public sector. So key to reducing “waste” in their eyes is reducing workers wages.


They claim that public sector workers are paid 8.2% more than private sector workers; this requires some deeper analysis though. The figures do not include bonuses or other perks which are far more prevalent in the private sector. Across the UK, particularly in England many of the lower skilled and paid jobs that were once in the public sector have been outsourced to the private sector. Outsourcing the lower paid jobs raises the average wage measure without anyone receiving any wage rise at all. This has also increased the number of low paid jobs in the private sector so decreasing the average wage point there.


Despite what the tax dodgers’ alliance claim the public sector is not where the fat cats are working. If you compare the pay of graduates, for example, in the public and private sectors then they earn less: 5.7% to be exact.


A trawl thorough their pages outlining figures from newspaper paper reports on council tea biscuit and train ticket bills can raise a smile but it’s not a serious analysis of public spending. It’s a shame that so many media outlets treat them as if they are producing high quality independent research. They are a right-wing body dedicated, not to value for money for tax payers, but to reducing the size of the public sector. They are currently campaigning to get rid of National Insurance, which no doubt suits their wealthy backers but may be a bit more tricky for the rest of us. “Behind the Mask” published by the Northern Ireland Public Service Alliance shows exactly who they are. Backers include: Tony Gallacher owner of Gallacher UK who has given £3million to the Conservatives since 2001; Christopher Kelly owner of Keltruck : Sir Anthony Bamford, of JCB who has also donated £1million to the Conservatives. and Stuart Wheeler who having previously donated £5million to the Conservatives has now endorsed UKIP. Remember who they are what they are trying to do the next time you here them on the radio.