Public sector pay bonanza to fuel year of discontent

HR
will face tough challenges over pay awards next year with research showing that
the economic downturn will continue to bite.  

Economic
experts warn that employers and staff are on a collision course over pay rises and
it could lead to an escalation in industrial disputes.

John
Philpott, chief economist at the CIPD, said businesses were under increasing
pressure to minimise wage bills, while staff want settlements that match up to
the high-profile salary increases in the public sector.

"The
economy will be slow and uncertain," he said. "There will be a
squeeze on profits for business, creating a clear need to contain costs."

Increases
in National Insurance (NI) contributions for both employers and staff next
April could intensify conflict over pay. Stephen Radley, chief economist of the
Engineering Employers Federation (EEF), said the rises will cost organisations
an additional £190 per full-time employee every year.

"Private
sector employees – who are suffering pay freezes and having to stomach NI
increases – will point to the growth in public sector pay," he said.
"It will be difficult for employers to keep a lid on pay, and jobs will
bear the brunt of the tax increases."  

The
EEF estimates that 70,000 jobs will be lost in manufacturing and that expansion
will only be 1.2 per cent – well below recent government predictions.  

The
Government’s injection of massive extra funds into the public sector will be
the catalyst for disputes over pay in 2003.

Keith
Handley, former president of local government HR body the Society of Chief
Personnel Officers, said: "History shows that once one area of the public
sector gets a big pay increase, pressure starts elsewhere – a domino
effect."

But
managing director of economic trends agency MMD, Bryan Finn, said last quarter
improvements in GDP in 2002 could be the start of a recovery.  

"The
big short-term challenge for HR is not to cut good staff," he said.
"It is very tough at the moment, but things will improve through next
year."

By
Mike Broad

Shoots
of recovery…


CBI predicts growth of 2.4 per cent – a gradual upturn in the UK’s economic
fortunes


US economy grew by 4 per cent this year which has raised confidence

…or
danger signals ahead


Recovery is being driven by debt-financed consumer spending


Unstable house prices would derail recovery


A war with Iraq would damage confidence

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