Years of pay freezes likely as economy slides toward deflation

Millions of public sector workers are facing pay freezes until 2012 as the UK heads for deflation.

Figures to be released today by the Office for National Statistics were expected to show the Retail Prices Index (RPI) has fallen below zero, causing a sustained period of falling prices known as ‘deflation’, although it only hit zero today.

The index measures the average month-to-month change in the prices of goods and services, and is used by the government to set the level of state pensions, welfare benefits and other pay.

With dozens of private sector employers imposing pay freezes, Alistair Darling is under pressure to set an example by restraining Whitehall and ministerial pay, and slashing many government HR jobs.

A top-down pay freeze would then set the tone for a round of pay negotiations for other public servants, including one million local government workers, 450,000 middle-ranking and junior civil servants, and prison officers.

NHS sources told The Times that pay for doctors would also be squeezed and suggested that employers were ready to renege on the third year of a pay deal for nurses and midwives worth 2.2%, as hospital trusts struggle to pay bills.

“Trusts are coming under financial pressure to even cover this year’s settlement,” said Alastair Henderson, joint director of NHS Employers. “We have agreed the second year [at 2.45 per cent] of a three-year pay deal which is now in place, but beyond that trusts will want to ensure they are able to cover the cost of pay.”

Earlier this month president of the Public Sector People Managers’ Association Stephen Moir warned it would be disasterous in recruitment and retention terms if public sector pay was frozen. His comments attracted a lot of criticism from HR chiefs.

 

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