National pay deal collapses in midst of economic crisis

The social partners have failed to achieve a consensus on a range of issues aiming to halt Ireland’s economic slide following a dispute over the government’s new pension levy on all public servants. Meanwhile, the recently agreed national pay deal has been overtaken by the current recession, with the government introducing a public sector pay freeze and private sector employers seeking deferral of pay increases for at least a year.

Impact of pay freeze on national pay agreement

The national pay agreement, which allows for a 6% pay increase over 21 months in all economic sectors, was ratified by the government, the Irish Congress of Trade Unions (ICTU) and the Irish Business and Employers’ Confederation (IBEC) on 17 November 2008 (IE0812019I). A range of non-pay elements, which include specific commitments on employment rights, were also part of the agreement. This Transitional Agreement (2.8Mb PDF) was expected to be one of a series of deals under the overall umbrella of the 10-year Towards 2016 (2.86Mb PDF) framework agreement, negotiated by the social partners in 2006.

However, as the Irish government struggles with the effects of the recession, it has put forward measures to stabilise the public finances which represent cuts in the provisions of the current national pay agreement. The government unilaterally decided to freeze all pay rises due to public servants until at least the end of 2010, while private sector employers are seeking a formal deferral of all pay rises for at least 12 months.

Pension levy causes social partnership talks to collapse

The current international financial and economic crisis has had a severe impact on the Irish economy due, in particular, to domestic over-reliance on the construction industry. Moreover, imprudent banking practices have meant a huge shortfall in tax revenues, thus leading to a serious public finance crisis. The seriousness of this problem triggered emergency social partnership talks in late January 2009 on a range of measures aiming to remove an immediate €2 billion in public expenditure, as part of efforts to tackle a €16.5 billion shortfall in the government’s finances.

However, these talks collapsed on 3 February, when the Fianna Fáil-Green Party government proposed a new pension levy that will, on average, mean a 7% levy on the after-tax pay of all 300,000 public service workers. ICTU complained that the levy would be too onerous on public sector workers and argued that the government had failed to address a range of commitments that would result in other groups in society ‘sharing the pain’ of the fiscal adjustment.

The public service pension levy, which the government plans to implement through legislation in the very near future, would come on top of an average 6% currently paid by public servants. In terms of pension provisions, public servants have guaranteed pensions on retirement, paid on the basis of a formula that links pension payments to any increases secured by their former grade or profession – in other words, retired teachers, for example, also benefit from pay rises received by teachers who are still in service.

Framework document on certain policy issues

Private sector trade union leaders have since joined their public sector colleagues in a wider ICTU sponsored effort to influence government policy in areas such as taxation, remuneration in banks and mortgage foreclosure policy. All of these issues had already been raised by the trade unions in the emergency talks. In fact, ICTU had succeeded in securing government and IBEC consensus on a range of policy items in an agreed ‘Framework Document’ that had provided the context for the talks which eventually failed. Therefore, the union movement is planning a mass protest campaign to influence government policy from the ‘outside’, for the first time since the 22-year-old social partnership process commenced in 1987.

The public service trade unions, however, have been largely silent about the public service pay freeze for the next two years. In light of the difficult economic climate, they realise that the government simply does not have the ability to meet the agreed rises without substantial borrowing while also maintaining vital expenditure on services. These services include a rising social welfare bill, given that unemployment is projected to increase well beyond the 10% level in 2009, according to government estimates.

Implementation of private sector pay deal

The private sector pay agreement, meanwhile, which provides for pay increases in two phases amounting to 3.5% and 2.5% respectively, is expected to be fully implemented in only a minority of unionised companies. It has been applied in a relatively small number of such companies to date. The specialist weekly publication Industrial Relations News (IRN) confirmed that, by 10 February 2009, a total of 55 companies had paid the first phase of the deal, but only a small number had agreed to honour the second phase.

IRN also suggested that the call by IBEC for a formal deferment of the deal is likely to mean fewer companies will now apply the agreement. It is considered unlikely that trade unions, in the current climate, will be able to push aggressively for any wide application of the agreement’s pay terms. However, at the time of writing, IBEC was awaiting a response from ICTU with regard to formal talks on the issue.

Headline companies implement first phases of pay deal

Ireland’s state-owned Electricity Supply Board (ESB), which controls 40% of the market and the entire domestic electricity market, paid the first 3.5% pay rise to all of its 8,500 workers. In response to its decision, the company and the representative trade unions received a considerable amount of adverse comments in a number of major newspapers, on radio and television, and from a number of government ministers. However, the company defended its decision, arguing that, as one of the signatories of the national agreement, it had to comply with the terms already negotiated and ratified.

ESB, as a profitable company, could not plead ‘inability to pay’ under the terms of the agreement as the company recorded profits of over €450 million in 2008; applying the 3.5% pay rise costs the company €8 million. ESB, however, has since decided to freeze the second phase of the deal, with trade union sources suggesting that this could be used to help fill an emerging gap in the company’s pension fund, believed to be around €1.3 billion.

Meanwhile, bank officials in one of Ireland’s two ‘big’ banks, the BOI, have also received the first phase (3.5%) of the pay agreement. Bank of Ireland made its decision prior to its €3.5 billion recapitalisation by the government. This decision was also criticised publicly, and it is unlikely that the bank will apply phase two of the pay agreement.

Wages and deflation

Indicating that employers are likely to continue to apply downward pressure on pay, IBEC, reacting to Ireland’s latest inflation figures in January 2009, stated that ‘falling prices must be reflected in wage trends’. IBEC Senior Economist, Fergal O’Brien, emphasised that the consumer price index (CPI) is set to remain in ‘negative territory’ for all of 2009 and even into 2010. He stated: ‘We expect the annual average inflation rate this year to be about minus 4%. This is the first time in over 60 years that we will experience annual price falls in Ireland.’ Mr O’Brien argues that a ‘realistic approach to wage setting, in the context of falling prices, will be instrumental in preserving as many jobs as possible in these exceptionally turbulent times’.

ICTU protest campaign

ICTU, which opposes the new pensions levy in its current form, planned a protest of all of its affiliated trade unions on 21 February in Dublin’s city centre, as part of a campaign for a new ‘social solidarity pact’. ICTU General Secretary David Begg insisted that this would be the start of a wider trade union campaign, entitled There is a better, fairer way (88Kb MS Word doc). The campaign hinges on 10 main issues:

  • protecting jobs and tackling unemployment;
  • the banking crisis and the public interest;
  • competitiveness;
  • the pay agreement;
  • fairness and taxation;
  • restoring consumer confidence;
  • the public sector ‘pension levy’;
  • the private sector pension crisis;
  • employment rights;
  • a National Recovery Bond.

Conclusions

The breakdown in the social partnership process has come at a time of almost unprecedented crisis for the Irish economy, with the social implications of rising unemployment starting to become apparent. The Prime Minister (Taoiseach), Brian Cowen, and the Director General of IBEC, Turlough O’Sullivan, insist that social partnership remains the best way of addressing these problems. The trade unions claim that they are also committed to social partnership. To forge a comprehensive plan, however, the three main actors must find more common ground. Social partnership, which helped to trigger the Irish economic success story in 1987, faces its biggest challenge to date.

Brian Sheehan, IRN Publishing

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