Inflation figures highlight onset of public sector pay freezes

The recent period of relatively generous pay hikes for public sector workers looks to be over as the impact of recession, rising unemployment and retail price deflation on pay settlements spreads beyond private sector workplaces.

The latest CIPD/KPMG Labour Market Outlook (LMO) survey finds that 1 in 5 public sector employers have frozen pay awards for the time being, identical to the proportion of private sector employers currently freezing staff pay. A further 6% of public sector employers are deferring pay decisions until later in the year, only slightly fewer than the 10% of private sector employers making deferrals.

Looking forward to the next 12 months, employers on balance expect pay increases in 2010 to be lower than this year. This reflects ongoing weakness in the labour market, with unemployment expected to rise well into 2010, and the impact of low inflation, especially on the Retail Prices Index (RPI) measure which is that most commonly used as a ëcost of livingí benchmark in pay settlements. Official inflation figures released today have shown that inflation is -1.4% on the RPI measure.

Charles Cotton, Reward Adviser, CIPD says:

ìWith unemployment rising and spare capacity in the economy bearing down on inflation it was always likely that, sooner or later, the big pay chill would spread into the public sector. Todayís official figures confirm that inflation remains in negative territory, which will effectively mean a rise in workersí real living standards even if you are subject to a pay freeze. However, this will be cold comfort for those who hoped the green shoots of economic recovery would signal the onset of a sunnier economic climate.î

Alan Downey, Partner and Head of Public Sector at KPMG, says:

Up to now, the private sector has borne the brunt of the recession, but financial pressure is starting to build in the public sector. Salaries represent a sizeable proportion of total public expenditure, and it is not surprising that employers are starting to squeeze the pay bill. While public servants may not welcome this move, the good news is that it should reduce the number of job losses that will be required.