Government calls for tougher stance on private sector pay

In April 1998, the UK Government called on private sector employers to follow the example of the public sector and curb wage increases

Following the recent publication of official figures showing pay increases in the private sector rising twice as fast as those in the public sector, the Chancellor of the Exchequer, Gordon Brown told the Confederation of British Industry (CBI) in a speech on 22 April 1998 that private sector employers should be taking a far tougher stance on pay. Adair Turner, the director general of the CBI, backed Mr Brown's warning on pay rises, stating that "the figures should be used to make people aware of the fact that some pay claims may be creeping above what is sustainable for the long term future."

However, despite the fact that above-average pay increases have been secured in areas suffering from skill shortages - such as information technology and construction - the CBI's own figures arguably fail to support the view that wages are out of control. This is confirmed by the figures from the Office for National Statistics (ONS) which show that average annual earnings growth stood at 4.5% in the three months to February 1998. This is unchanged from the previous month and lower than 1997's peak of 4.6%. What the latest figures do underline is the pay gulf that is opening between the public and private sectors. Annual public sector earnings growth stood at 2.4% in the three months to the end of February, while annual private sector earnings growth stood at 5.2% over the same period. The figures also show that even within the private sector there are large differences - for example, earnings in the financial sector were rising at an annual rate of 9.4%. On the other hand, analysis of pay settlements in engineering firms by the Engineering Employers Federation (EEF) showed the average pay increase to be 3.5%, with 85% of settlements below the 4% level.

While the Chancellor argues that the public sector now understand the need for wage moderation, an equally plausible view, according to some observers, is that the public sector has been subject to a pay squeeze that will not prove sustainable for much longer. In fact, trade unions were angered recently by the decision of the Government to phase in the recommendations of the pay review body for nurses and doctors.

In response to the talk of pay moderation, Ken Jackson, the general secretary of the Amalgamated Engineering and Electrical Union stated that calls for restraint had been a theme since the mid-1950s and that such calls had never yet proved to be a practical means of dealing with the problem.

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