Pay Intelligence

XpertHR economic commentary February 2012: Squeezed

2012-02-01T00:01:00Z

XpertHR's February 2012 economic commentary examines current threats to UK economic recovery, including the ongoing income squeeze.

One month into 2012, and the UK economy finds itself back in negative territory.

Economic uncertainty is widespread, which in turn makes recovery ever more difficult.

"Uncertainty is [a] significant risk," according to a survey of CFOs by Deloitte. It finds that "56% of CFOs rate the level of uncertainty facing their business as being 'high' or 'very high.' As one respondent put it, 'Everyone is waiting for something very bad to happen.'" Respondents to the Deloitte survey also see a 54% chance of a double-dip recession for the UK.

The Guardian's Larry Elliott identifies a "triple whammy" of factors making UK economic recovery problematic: "falling real incomes, austerity and the crisis in the eurozone"

XpertHR's economic commentary for February 2012 looks in detail at the impact of each of these factors, and rounds up the latest data on key economic indicators of relevance to HR professionals and reward practitioners.
]]> The UK's ongoing income squeeze
Let's start with falling real incomes.

An ongoing "income squeeze" is affecting UK households. This is according to a Bank of England survey of 1,985 UK households conducted in September 2011 by NMG Consulting.

The research shows that a majority of UK households experienced an "income squeeze" over the year to September 2011. The outlook for incomes in 2012 is "uncertain" as economic austerity measures take hold.

Across the survey sample, the average pre-tax household income was £2,850 per month. The average monthly 'available' income (defined as disposable income after tax, national insurance and housing costs) for UK households was £720 per month. Available income had fallen over the preceding year by £46 per month.

The Bank of England identifies three key factors contributing to the income squeeze: the January 2011 VAT hike; rising energy and import prices; and economic austerity measures.

Read the complete findings of the Bank of England research here.

Will the income squeeze ease off in 2012?
So how likely is it that the "income squeeze" might ease off in 2012?

Bank of England Monetary Policy Committee (MPC) member Ben Broadbent argues that there could be reason for some (cautious) optimism. He says that a number of the factors identified as contributing to the squeeze on household incomes are expected to ease over the coming months:

We would be wrong to paint only a gloomy picture. We have had a couple of really big hits to household income over the last two years. Between them, VAT and commodity prices might have taken 2.5% out of household incomes, and we're not going to have those again. VAT is not going up again and petrol and oil prices look pretty stable. That's a big effect which will add to real household income.

It should also be noted that a number of energy providers have recently cut some of their prices, which may in turn ease some of the burden on many UK households.

Higher pay awards for private sector workers in 2012 'a real prospect'
After a comparatively subdued 2011, private sector pay awards are showing some promising signs of growth in 2012, according to latest readings from the XpertHR pay databank.

XpertHR Pay and Benefits Editor Sheila Attwood reports that preliminary analysis of January 2012 pay awards for private sector workers suggests that "for many private sector workers, pay rises higher than the levels seen in 2011 are a real prospect." She says:

Pay rises effective in January 2012 - exclusively in the private sector due to a lack of public sector bargaining at this time of year - are worth a median 2.8%.

XpertHR will publish its analysis of whole economy pay trends over the three months to 31 January 2012 on Friday 24 February 2012.

UK economy shrank by 0.2% in Q4 2011
The UK economy has lapsed back into negative territory, with gross domestic product (GDP) contracting by 0.2% in the fourth quarter of 2011. This is according to latest GDP estimates published by the Office for National Statistics (ONS) last week (on Wednesday 25 January 2012).

This lapse into negative growth means that a double-dip recession is possible. But it is not necessarily inevitable:

It is possible that estimates of GDP growth in the fourth quarter of 2011 will be revised upwards in subsequent data releases, taking it back into positive territory.
As we recently noted, growth in the second and third quarters of 2012 could also be boosted by an "Olympic bounce."

Prospects for economic recovery: Is flat the new growth?
Double-dip recession remains a concern, but many commentators believe it could yet be avoided, and that GDP growth at or around nil is a more likely scenario. For example, Sunday Times Economics Editor David Smith says we might "have to get used to the idea of flat being the new growth." He notes that the UK's lapse back into negative territory could hit already-faltering consumer confidence hard.

Here is a round-up of expert GDP forecasts published over the past month.

"We believe UK GDP will stagnate overall until mid-2012, with one quarter very likely in negative territory," says British Chambers of Commerce (BCC) Chief Economist David Kern. But BCC Director General John Longworth notes that "a new recession is not a foregone conclusion."
The EEF expects 1% GDP growth in 2012. However, "the downside risks to growth are even more marked" than at the start of 2011.
The Ernst & Young ITEM Club forecasts that UK GDP will run at 0.2% in 2012, rising to 1.8% in 2013 and 2.8% in 2014. It says that the UK economy is "likely to remain stalled until the second half of [2012,] when falling inflation should provide a platform for a consumer recovery," and that "a serious double dip" is not envisaged. However, it also cautions that even this "optimistic assumption" presupposes a speedy and successful resolution to pressing economic problems in the eurozone, China, and other territories.
The IMF has slashed its forecast for UK GDP growth in 2012 from 1.6% to 0.6%. It predicts a "mild recession" for the eurozone ,with GDP expected to contract by 0.5% in 2012. IMF Economic Counsellor Olivier Blanchard says: "The outlook for growth is mediocre. [...] The world recovery, which was weak in the first place, is in danger of stalling. The epicentre of the danger is Europe, but the rest of the world is increasingly affected."

For more on latest expert GDP forecasts, click here.

Inflation: Second anniversary for above-target inflation
Inflation appears to have embarked on a downward path, but remains elevated. Indeed, the latest official inflation data release from ONS brought news of the second anniversary of above-target inflation:

Consumer prices index (CPI) inflation fell back to 4.2% in December 2011 (down 0.6 percentage points from 4.8% in November). Despite this fall, CPI has now notched up its second anniversary of coming in consistently above the Government's 2% inflation target rate, just as it has for each successive month since December 2009.
Retail prices index (RPI) inflation dropped to 4.8% in December 2011, a fall of 0.4 percentage points from the previous month's figure (5.2%).

At present, the consensus view among economic commentators is that inflation will continue to fall back throughout 2012. For example:

The EEF expects CPI inflation to hit its 2% target rate in August 2012.
The Ernst & Young ITEM Club says "falling inflation should provide a platform for a consumer recovery" in the second half of 2012. It expects CPI to average 2.3% in 2012, slowing further to 1.9% in 2013.

However, the story of inflation in 2012 may not prove this straightforward. Falling inflation could cause problems of its own. And it is also possible that a spike in oil prices could apply new upward pressure to inflation. The Guardian sums up this situation:

[I]it may be that by the end of 2012, it's deflation, not inflation we'll be worrying about - though if Iran carries out its threat to close the strait of Hormuz, and choke off oil supplies to the west, all bets are off."

The Economist notes that "some 20% of world oil production passes" through the strait of Hormuz, and that "supply disruptions of that magnitude in the past were associated with oil price increases of between 25% and 70% - and with American recessions."

Eurozone crisis intensifies further
Even the "glimmer of hope" offered by falling inflation is contingent on a successful resolution of the eurozone crisis (as an FT survey of leading economists points out).

The ongoing crisis in the eurozone is the second factor in the "triple whammy" facing the UK economy.

The past month has seen the crisis intensify further:

The credit agencies have downgraded many eurozone countries (see the Guardian's helpful overview). Standard & Poor's has also downgraded the European Financial Stability Fund (the EFSF; the eurozone's "big bazooka" bailout fund).
Concerns are emerging that a double-dip recession is possible for many eurozone countries. The IMF World Economic Outlook report says that "the global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere." The IMF says "the euro area economy is now expected to go into a mild recession in 2012." It has slashed its global GDP growth forecast for 2012 from 4% to 3.3%
The draft euro-plus treaty "sets up a framework and a timetable for the evolution of European economic policy as mediated by EU institutions that, if not substantially amended, all but guarantees Britain's departure from the Union [by 2017]." This is according to New Statesman blogger Rafael Behr.

At the start of this week, William Hague warned that the eurozone crisis is having a "chilling effect" on the UK economy. Yet some commentators remain convinced that the eurozone crisis can and will be resolved relatively quickly. HSBC Chairman Douglas Flint believes European leaders will take "firm action" to resolve crisis by second half of 2012:

It would be naive to think that this can be solved within weeks, but my view is that it will be a reasonably short timeframe, certainly by second half [of 2012].

A fiscal treaty designed to help enforce budget discipline has now been signed by 25 of the 27 EU member states (with only the UK and the Czech Republic opting out), the BBC reports. It remains to be seen if this will mark a turning point in the eurozone crisis.

The impact of austerity measures on economic recovery
The impact of economic austerity measures on economic growth is the third factor in the "triple whammy" facing the economy.

A number of official bodies have issued warnings on the potential impact of austerity on growth:

Economic austerity is likely to produce further uncertainty as 2012 unfolds, Bank of England research suggests. Nearly half of UK households (48%) surveyed say they have been affected by austerity measures over the past year. But looking ahead, more than two-thirds of UK households (69%) expect austerity to affect them over the coming year. The three main expected effects of austerity are: higher taxes (cited by 32% of respondents), lower income (24%) and less spending on services used (20%). Fear of job loss is also prevalent, and rises sharply in households "that were reliant on the public sector for more than half of their income," to around one in three.
IMF Fiscal Affairs Department Head Carlo Cottarelli says: "The pace of fiscal consolidation in advanced economies in 2012 is already high. Too rapid consolidation, if economic growth slows, could exacerbate risks."
The ILO says: "Recently observed cuts in labour market spending, such as reduced support for programmes for young jobseekers in the United Kingdom, are likely to come with substantial long-term adverse consequences for labour market prospects."
"Expansionary contraction is oxymoronic although I don't think you actually need the prefix oxy." This is according to Harvard professor Larry Summers, speaking at last month's World Economic Forum in Davos.

However, it is unlikely that Chancellor George Osborne will announce any rethink of austerity measures when he delivers his Budget 2012 speech next month (on Wednesday 21 March 2012).

Osborne once again reaffirmed his faith in austerity measures in a speech to the Asian Financial Forum in Hong Kong in January 2012:

[G]lobal confidence in a country depends on its determination to deal decisively with the challenges it faces - and by getting to grip with our debts, Britain has shown it is determined to do that.

Unemployment rate hits highest level since November 1995
Economic austerity measures appear to be having a direct impact on unemployment.

The first unemployment data release of 2012 shows the failure of the private sector to create new jobs to fill the gaps resulting from public sector job cuts.

Unemployment continues to climb across a number of measures:

The headline unemployment rate (on the ILO definition) hit 8.4% between September and November 2011, its highest rate since November 1995.
The number of unemployed people rose to 2.68 million, an increase of 118,000.
Youth unemployment once again hit a record high, rising to 22.3% over the three months to November 2011.
The number of people "working part-time because they could not find a full-time job" also hit a record high of 1.31 million.

Economic commentators are united in expecting labour market conditions to worsen throughout 2012:

"The number of unemployed looks set to hit the three million mark this year, as the economy heads back into recession," says economist David Blanchflower.
The British Chambers of Commerce (BCC) says: "We are predicting an increase in the UK jobless total to 2.77 million by the end of 2012."
Latest DWP projections suggest that "an extra 750,000 people will join the ranks of the long-term unemployed over the next four years," the Guardian reports. It says the DWP forecasts "show an increase of 32% from 2.4 million to 3.3 million in the number of people expected to be entered into the Work Programme - the government's flagship project for finding work for those who are typically out of work for longer than 9-12 months."
The EEF expects the ILO unemployment rate to run at 8.6% over 2012.
The Ernst & Young ITEM Club expects unemployment to "peak in the first half of 2013 at almost 3 million, 9.3% of the labour force, before beginning to fall back."
"Long-term uncertainties over the state of the economy will force employers to put at least some of their hiring strategies on hold, and to think harder before employing new staff; a situation that will force significant changes in the behaviour of job seekers in the year ahead." This is according to the latest Quarterly Recruitment Review from Jobsite.

How much more quantitative easing can we expect in 2012?
With the economy back in negative territory, many commentators expect to see an extension to the UK's programme of quantitative easing in the near future, in order to attempt to boost growth.

New quantitative easing could come as soon as midday on Thursday 9 February 2012, when the results of the MPC's February 2012 meeting are announced.

For example, the Evening Standard says that "a February return to the printing presses by the Bank of England look[s] all but certain," following the news of falling inflation.

There is also speculation that the MPC could be considering other measures to boost growth, such as improving credit flow to businesses.

So how much additional quantitative easing might we expect?

The BBC's Stephanie Flanders notes that "many economists expect a further £50 billion-plus of quantitative easing once the current programme is complete." This would increase the total value of the Bank of England's "asset purchases financed by the issuance of central bank reserves" to £325 billion.

Flanders cautions that we could soon reach "the technical limits of quantitative easing." This is "the practical question of when and whether the Bank will run out of Government bonds to buy." She says:

[T]he Bank has set itself fairly clear limits on the kind of bonds it will buy, and how much. If the MPC is still worrying about deflation and recession a year from now, those limits could well start to bind. [... HSBC research suggests that] the MPC has significantly less than £500 billion in government bonds available for quantitative easing in 2012, £275bn of which it has already bought, or is committed to buying in the next few weeks. And that is the absolute limit.

So there is a ceiling on quantitative easing.

Even the Bank of England could be feeling the squeeze before 2012 is out.

Key bargaining statistics on pay, prices and employment for February 2012

Pay bargaining statistics: February 2012

2012-02-01T00:00:01Z

We present the February 2012 XpertHR Salary Surveys pay bargaining statistics table, which provides the latest monthly summary of key data for pay specialists.

]]> XpertHR Salary Surveys pay bargaining statistics: February 2012 Measure How calculated Date Latest INFLATION

Retail Prices Index (RPI) % change over 12 months Dec 11

4.8%

Consumer Prices Index (CPI) % change over 12 months Dec 11

4.2%

BASIC PAY SETTLEMENTS

Whole economy - median Annual awards over three months Dec 11

2.5%

Whole economy - upper quartile Annual awards over three months Dec 11

3.0%

Whole economy - lower quartile Annual awards over three months Dec 11

1.6%

EMPLOYMENT

Unemployment ILO measure: jobless and seeking work Nov 11

2.68 million

Redundancies Number of redundancies, 3 months to Dec 11

164,000

Vacancies Number of vacancies, 3 months to Dec 11

463,000

Sources: Inflation: ONS; Pay settlements: XpertHR pay databank; Employment: ONS.

Public service pension reforms "unlikely to save money"

2012-01-31T11:23:52Z

The public service pension reforms currently being negotiated will make "little or no difference to the long-term costs", according to analysis by researchers at the Institute for Fiscal Studies (IFS). Discussions over the reform of public service pensions have been protracted and difficult, and have resulted in two days of industrial action. The IFS report finds that savings made as a result of increasing the age at which employees can take their pension are, on average, offset by changes to other elements.
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The IFS concludes that, in general, lower earners in the public sector will get a more generous pension as a result of the proposed reforms, although higher earners are likely to lose out in the move from final-salary to career-average schemes. This will have the effect of increasing the differential between the public and private sectors, as it is the lowest paid in the private sector who are least likely to have good occupational pension provision.

Responding to the IFS findings, TUC general secretary Brendan Barber said: "This report examines only one of the three major changes to public sector pensions. As its analysis concedes, the switch to CPI indexation has had a huge impact on future pensions. Similarly the big increase in contributions immediately reduces the cost of public sector pensions by taking a big chunk out of most public servants' pay.

"The IFS draws its conclusions only from changes in scheme design, where union negotiators - aided by the great support for the TUC's day of action on November 30 - were able to win concessions. But if you take the package as a whole there can be no doubt that many public sector workers may have to pay more, work longer and get a pension that will not keep up with the proper measure of the cost of living."

On the Today programme on BBC Radio 4 on 31 January 2012, the Treasury described the IFS analysis as "partial and misleading" and said reforms to public service pensions would save the taxpayer "tens of billions of pounds over the next few decades".

Police officer pay and pensions changes confirmed

2012-01-30T12:51:32Z

The award of the Police Arbitration Tribunal (PAT) on a package of reforms to police officer pay and conditions in England and Wales has been accepted in full by Home Secretary Theresa May, it was announced today (30 January 2012).

The PAT had been asked to consider the recommendations of the first part of the Winsor review of police pay and conditions after the Police Negotiating Board failed to reach agreement on the proposed changes. Although the tribunal accepted 10 of Winsor's recommendations, it modified five. The home secretary's decision means that police officers will see pay progression frozen for two years in addition to a two-year basic pay freeze. May described the reforms as "an important first step in modifying police pay and conditions so that they are fair to officers and to taxpayers", and confirmed that the Government was committed to further reform. The second part of the Winsor review, which looks at longer-term changes to police pay, is expected shortly. Several of the recommendations of the first part of the review have been deferred until the second part is published.
]]> reform of public service pensions [£]. The Police Negotiating Board will be asked to consider the proposed increases for 2013/14 and 2014/15.

Responding to the announcement that the PAT's ruling had been accepted, the lead on workforce development for the Association of Chief Police Officers (ACPO), Chief Constable Peter Fahy, said:

"Overall, the decisions strike a balance between the need to achieve savings given the national economic situation and the financial pressures facing individual police officers.

"The two-year pay freeze combined with a two-year increment freeze, the removal of various bonus payments and the increase in pension contributions will have a significant impact on many staff. It is right that those working unsocial hours should receive an additional payment.

"Over time ACPO would like to see a greater emphasis on recognising the considerable expertise of our staff in the pay system and a lesser importance on time served. We will hopefully be able to address some of these issues in the next stage of the Winsor report."

Paul McKeever, chairman of the Police Federation of England and Wales, said:

"We are pleased that the home secretary has honoured the Police Negotiating Board (PNB) process and will ratify the decision of the Police Arbitration Tribunal.

"However, whilst we accept that the decision of the PAT is binding on both sides of PNB, it does not mean that we're happy with the outcome. Whichever way you dress it up, this will mean serious financial hardship for police officers.

"In addition to what amounts to a four-year public sector pay freeze and increased pension contributions, police officers are having to contend with a range of changes to terms and conditions; the result of which is effectively a pay cut.

"The imposition of the pension increase is disappointing. Police officers not only have no industrial rights; on the issues of pensions they have no right to negotiate."

UPDATE: Following the home secretary's decision, it was announced that the publication of the second part of the Winsor review, which had been expected in January 2012, would be subject to "a short delay".

The national minimum wage: 'A machine to destroy jobs'?

2012-01-27T08:25:00Z

"The minimum wage is a machine to destroy jobs." This is according to Prudential Chief Executive Tidjane Thiam, speaking at the World Economic Forum in Davos, yesterday (Thursday 26 January 2012). Thiam argued that the national minimum wage is a "false social policy" designed to protect workers, but which serves to prevent the unemployed from finding work.

National minimum wage: Crowding out the unemployed?
According to the Daily Telegraph, Thiam said:

The minimum wage is a machine to destroy jobs. Look at France and Le Pen. The minimum wage is the enemy of young people entering the labour market. They don't have a voice. [...] Unions represent people already in jobs so they always support minimum wages. That crowds out the unemployed. People can't get full time employment. They move from fixed-term contract to fixed-term contract.

Thiam's comments come in the run-up to the announcement of the national minimum wage increase for 2012/2013, which will come into effect from Monday 1 October 2012.

What can we expect from the October 2012 national minimum wage increase?
Given the current backdrop of ongoing economic uncertainty, subdued pay awards, rising unemployment and falling inflation, news of the annual increase to the national minimum wage for 2012/2013 (due to come into effect on Monday 1 October 2012) will be particularly closely watched.

The Low Pay Commission (LPC) is scheduled to deliver its 2012 report - which will set out its recommendations for the 2012/2013 national minimum wage rates - to the Government by the end of February 2012.

The Government will then announce the national minimum wage rates for 2012/2013 a few weeks later, although we do not yet know if this will form part of Chancellor George Osborne's Budget 2012 speech on Wednesday 21 March 2012.

As XpertHR notes, it is not a foregone conclusion that we will see any increase to the national minimum wage in 2012/2013.

The Telegraph's Head of Business Damian Reece argues that "the [national] minimum wage [must be] set at an appropriate level," and suggests that "a helpful start to minimum wage reform might be a moratorium on any further rises, at least for another two years."
]]> XpertHR will of course keep you updated as to further developments regarding the national minimum wage rates for 2012/2013.

UPDATE 1 (Friday 27 January 2012):
The issues raised in this post have received a number of interesting responses via social media:

Simon Jones comments: "It's slightly concerning that the leader of a major business does not understand simple economics. Driving down wages drives down spending power and thus reduces demand for goods and services. It also treats labour simply as a commodity that can be picked up and put down as and when required - exactly the sort of behaviour that will disillusion young people and is more likely than the minimum wage, in my view, to drive them into the arms of extremists."
@pcsavage says (via Twitter): Not having a minimum wage would just nationalise the problem. Low pay = benefits = paid by taxpayer not employer
@deniswbarnard says (via Twitter): Problem is costs not wages. Fixed costs of living in the UK (utilities, petrol, taxes) untenable. Add in inflation: ker-boom! We are paying more and more for less and less. Exactly what value does the Community charge deliver nowadays?

See also:

National minimum wage 2012/2013: What can we expect from the October 2012 national minimum wage increase? We look at what might be expected from the national minimum wage increase for 2012/2013. This post will be kept updated as new information emerges on what we might expect from the national minimum wage in 2012/2013.
How little are you worth? Pay, the economy and a living wage UK HR blogger Neil Morrison responds to claims from the Institute of Economic Affairs that the national minimum wage might be stifling job creation.
Pay and Work Rights Helpline contact details On the Directgov website. Directgov says: "The Pay and Work Rights Helpline gives confidential help and advice on the NMW and can handle calls in over 100 languages. If you aren't being paid the NMW you can contact the Pay and Work Rights helpline or use the online enquiry or complaint form."
Calculating the National Minimum Wage: How to check your pay On the Directgov website. Directgov says: "Almost all workers are entitled to be paid at least the National Minimum Wage (NMW). To check if you are being paid the NMW rate you need to know your pay reference period and what elements of pay count towards the NMW."
National minimum wage: Rates and thresholds for employers Latest info from the HMRC website.
Minimum wage should be scrapped, says IEA's Littlewood The BBC reports.
National Minimum Wage 2011 (XpertHR benchmarking subscription required) The XpertHR benchmarking survey on the national minimum wage for 2010/2011. The survey looks at the following: the impact of the national minimum wage; how employers have adjusted to the national minimum wage; and at their views on the statutory pay floor.
International minimum wage update 2011 (Subscription required) Twenty out of 27 EU member states have a national minimum wage. In January 2011, according to the latest Eurostat data, monthly minimum wage rates ranged from €1,758 in Luxembourg to €123 in Bulgaria - more than a 14-fold difference. At €1,139, the UK's minimum wage was the EU's sixth highest.
National minimum wage (Subscription required) From XpertHR's statutory rates service.
Low Pay Commission Visit the Low Pay Commission (LPC) website for further information on the national minimum wage for 2011/2012, and for previous years.
Low Pay Commission 2011 Report (PDF format, 4.1 MB) Download the 2011 LPC report, which sets out the LPC's complete research and recommendations on the 2011/2012 national minimum wage increase.
The National Minimum Wage rates Complete details of current and future national minimum wage rates from the Directgov website.

"Underwhelming" proposals on curbing executive pay

2012-01-24T12:07:24Z

Reaction to Vince Cable's proposals on executive pay (on the Parliament website) is mixed, with many commentators questioning whether they will lead to any difference in practice. Unions in particular had hoped that the proposals would include introducing employee representation on remuneration committees, but instead the onus remains with shareholders. The TUC said that the proposals have "spectacularly failed to make any significant changes to the status quo", while trade union Unite said the Business Secretary "lacks backbone on boardroom pay". Labour MP Chuka Umunna, who forced the Business Secretary to make his announcement a day earlier than planned, asked why the plans do not "back moves for employees to sit on the remuneration committees that set pay?"

However, some business commentators are more positive, with the Institute of Directors saying that "The Government has done the right thing in rejecting calls for the mandatory inclusion of employees on remuneration committees." CBI director-general John Cridland commented: "Not including employees on boards makes sense. Every good company involves its staff in how the business is doing, but boards must be the representatives of business owners."

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In his statement to the House of Commons, Cable said that "it is not the Government's role to micro-manage company pay", but that it could not accept top pay rising at five times the rate of average workers' pay. The measures to be taken forward include those to force greater transparency, and more shareholder powers.

On greater transparency, companies will have to provide more details on executive pay, and "be expected" to detail their executive pay policies, including how these fit overall with company strategy. On greater shareholder involvement, he will launch a consultation on giving shareholders a binding vote on executive pay, as well as on notice periods and large severance packages. Other proposals include introducing more diversity onto company boards, with companies being required to report on boardroom diversity; and requiring all companies to have "clawback" policies where bonuses are no longer deemed justified.

Pay rises highest for three years

2012-01-20T00:01:00Z

The first analysis of pay settlements effective in 2012 reveals a marked increase in the level of awards made, according to pay specialists XpertHR.

Pay rises effective in January 2012 - exclusively in the private sector due to a lack of public sector bargaining at this time of year - are worth a median 2.8%. This is the highest level seen since December 2008 (when the private sector median stood at 3.7%).

This is well above the 2% to 2.5% median increase seen through 2011 in the private sector, and above the 2.5% median recorded in the three months to the end of December 2011.

Pay freezes continue to feature in our analysis, with our sample including six settlements where pay has been frozen. However, almost half (48.8%) of January 2012 pay deals are worth 3% or more, and 3% is the most common pay increase recorded.

Manufacturing pay awards continue to outstrip those in the services sector, something that we have seen since April 2010. Among the pay awards effective in January 2012, the median pay increase in the manufacturing sector is 3%, compared with 2.5% in private sector services.

The pattern of higher pay awards in the first few months of the year was something we saw in 2011 - the level of pay increases fell in April 2011 when the public sector pay freezes were added to the calculations and pay awards in the service sector were low. We can again expect a flurry of public sector pay awards worth nil to be added to the data in April, but remain hopeful that private sector pay awards will maintain their upward trend.

The increase in pay awards is set against a marked fall in retail prices index (RPI) inflation - to 4.8% in December 2011. If the pace of decline in inflation continues, there is a real opportunity for employers to make up for years of low pay rises with an increase this year that is worth more than inflation.

XpertHR Pay and Benefits editor Sheila Attwood said:

"The data collected to date suggests that pay bargaining in 2012 has got off to a good start and that, for many private sector workers, pay rises higher than the levels seen in 2011 are a real prospect.

"Over the past few months we have started to see evidence of a shift to higher pay awards than were made the year before. We now find that the majority of pay awards are at a higher or the same level as paid to the same group of employees the year before, with only a handful making lower awards."

Regional pay riles unions

2012-01-11T14:42:35Z

Moving public sector workers onto regional pay has been branded by the GMB as "short changing regional economies".

The Government proposals to introduce regional pay were debated at the House of Commons yesterday. According to the Government, this will help to create a more balanced economy, but those opposed to the proposals, such as Jonathan Edwards Plaid Cymru MP, say the proposals would further depress areas in need of investment.

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Paul Kenny, GMB General Secretary said, "Cutting workers' pay will not create a single job in any region and will lead to further falls in demands for goods and services in regions facing the pay cuts implied in this proposal.

"Living standards have already dropped by between 9.1 % and 2.3% in different regions since the general election and these proposals will make things worse for the ordinary working people."

The union PCS agreed regional or local pay rates would "drive down wages and further depress local economies that desperately need investment, not more cuts". It described Chancellor George Osborne's proposal as "economically incoherent".

The proposals were part of the 2011 Autumn Statement, when Osborne asked pay review bodies to "consider how public sector pay can be made more responsive to local labour markets".

Pay progression freeze for police officers upheld by Police Arbitration Tribunal

2012-01-09T17:00:00Z

UPDATE 30 JANUARY 2012 The Home Secretary has confirmed that she will accept the Police Arbitration Tribunal's findings in full.

A two-year freeze on pay progression for most police officers in England and Wales should go ahead by April 2012, finds the Police Arbitration Tribunal (PAT), whose decision on the Winsor recommendations (external website) was published today (9 January 2012).

The PAT was asked to make an award on 18 recommendations of the Winsor review of police pay and conditions on which the Police Negotiating Board (PNB) was unable to reach agreement. Winsor had proposed a two-year freeze on incremental progression, and the official side of the PNB had agreed to make an exception for new officers at the bottom of the pay scale. Although the PAT took the view that the first three points on the constable's scale should be excluded from the suspension, it said all other progression on the police officers' pay scales should be frozen as proposed.
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Responding to the decision, Paul McKeever, chairman of the Police Federation of England and Wales, said:

"We are extremely disappointed with today's decision by the Police Arbitration Tribunal and know that many police officers across England and Wales will be angry and dismayed about their future. However, we entered in to the negotiation process in good faith and therefore, whilst not happy with the entire decision, accept their ruling. . . Moving forward, we will do everything in our power at the Police Negotiating Board to minimise the negative impact today's decision could have on police officers."

Although the award of the PAT stands as an agreement made in the PNB, the final decision on whether or not to accept its findings lies with the home secretary.

XpertHR economic commentary January 2012: Welcome to 'no-growth Britain'?

2012-01-01T00:03:01Z

XpertHR's January 2012 economic commentary looks ahead to prospects for the coming year.

As 2012 gets underway, the UK economic outlook is extremely uncertain.

The UK is now well into the age of austerity. Growth is ongoing but weak, with concerns that we could lapse back into recession. Unemployment is on the rise, while UK households are finding themselves ever more stretched as pay awards approach their second anniversary of consistently coming in below inflation.

It also remains to be seen what impact David Cameron's decision to exempt the UK from a deal to tackle the eurozone debt crisis will have on longer-term prospects for the UK economy.

Here, we present a detailed overview of UK economic prospects for the coming year. In a separate article, we present a round-up of economic predictions for 2012 from a number of leading UK HR bloggers.
]]> How long will the age of austerity last?

The UK is firmly locked in to the age of austerity. The question now is how long it might be expected to last.

Chancellor George Osborne's Autumn Statement saw the crucial admission that the UK budget deficit is not now expected to be eliminated until 2017, missing the previously stated target of the end of the current Parliament in 2015.

So how long might the UK's age of austerity be expected to last?

We could be looking at a period of long-haul austerity for the UK economy, or even permanent austerity in our lifetimes.

The FT's Martin Wolf takes a particularly sombre view:

The big facts are that the UK is set for a lost decade and a longer period of stringency than expected. The Government's position is that there is no alternative. That has now become a self-fulfilling prophecy.

Public sector austerity will be "the new normal for the next 20 years," argues consultant Steven Toft. Toft says:

Further severe spending cuts [...] look unavoidable unless taxes rise significantly or we get a near-miraculous growth spurt in the next five years. Whoever is in office during the next decade will have to deal with this problem eventually.

Tax rises are an ever less palatable option for the Coalition Government. Public support for tax rises to prop up public spending is in sharp decline, according to new data from the National Centre for Social Research. It finds:

[S]upport for government increasing taxes and spending more on health, education and social benefits has halved from a peak of 63% [in 2002], to just 31% [in 2011]. It's striking that support for 'tax and spend' policies has reduced to a level last seen in 1983 in the aftermath of recession and continuing 'stagflation' in the economy.

Further public spending cuts consequently appear a much more likely option.

Why 2011 was 'the year of reluctant recovery'

2011 has been the year of the reluctant recovery. Growth has disappointed, both here and abroad.

This is the view of Bank of England Governor Mervyn King.

A key plank of what we might call 'Osbornomics' was that as public spending is scaled back, the private sector would step in as engine of growth and creator of jobs. The crucial second part of this formula is so far proving slow to materialise.

UK economic growth has consequently been - as King puts it - disappointing. But economic growth is at least ongoing at present.

Indeed, both King and Osborne received a welcome pre-Christmas gift in the shape of an upward revision to growth figures. The UK economy grew by 0.6% in the third quarter of 2011, according to latest revised estimates of growth in gross domestic product (GDP) published by the Office for National Statistics (ONS) just before Christmas (Tuesday 22 December 2011). This is up by 0.1 percentage point when compared with the preliminary and first revised estimates, both of which put third-quarter GDP growth at 0.5%.

However, there were also other less positive revisions in the GDP data release. As Sunday Times Economics Editor David Smith points out, "the third quarter's gain is the second's loss - that has now been revised down from 0.1% to zero."

GDP prospects for 2012: Welcome to 'no-growth Britain'?
Could we be about to enter the era of "no-growth Britain" (to use a phrase coined by pseudonymous HR blogger Rick)?

Here is a round-up of latest GDP growth predictions:

Bank of England Governor Mervyn King says UK GDP growth will be "flat or close to zero" over the first half of 2012.
UK GDP growth will run at 0.7% in 2012, while the eurozone will see GDP growth of -0.8%, in the view of Goldman Sachs.
The UK economy will contract by 0.4% in 2012, according to Legal & General.
The Office for Budget Responsibility (OBR) predicts that the UK economy will grow by 0.9% over the course of 2011, with growth slowing to 0.7% in 2012. The BBC's Stephanie Flanders warns that even these predictions could prove "optimistic." She says: "If there is a recession in the eurozone, it is difficult to see how that forecast for 2012 would be achieved." Ernst & Young predicts a "mild" recession for the eurozone in 2012, while the IMF's Christine Lagarde warns that the global economic outlook is "quite gloomy."
The UK economy will contract by 1.3% in 2012, says Standard Chartered.

ONS will publish its preliminary estimate for economic growth in the fourth quarter of 2011 later this month, on Wednesday 25 January 2012. The Guardian notes that recent PMI survey data suggest "that the economy will either stagnate in the fourth quarter of 2011 or grow extremely slowly."

The most optimistic assessment would appear to be that fourth-quarter growth will come in at or very slightly above nil.

It says something about our times that near-flat growth represents the best outcome that can realistically be hoped for at present.

GDP prospects for 2012: Will an 'Olympic bounce' help the UK skirt a double-dip recession?

A double-dip recession in 2012 is a possibility for the UK. But it is not a foregone conclusion.

A number of factors could serve to improve prospects for UK GDP growth to some extent:

Growth in the first quarter of 2012 will be aided by the Bank of England's October 2011 extension of quantitative easing. Martin Weale estimates "that the current programme of asset purchases [will] boost growth by up to 0.5%, in line with the Bank's official calculations." ONS publishes its preliminary estimate of Q1 2012 GDP growth on Wednesday 25 April 2012.
Growth in the second quarter of 2012 could benefit from an "Olympic bounce." UK GDP growth in the second quarter of 2012 will be boosted by deferred revenue from advance Olympic ticket sales in Q2 2011. ING estimates that Olympic ticket sales are worth £400 million in total, which could have created a 0.2% "Olympic bounce" had they been incorporated into GDP data for Q2 2011. It remains to be seen what impact this deferred revenue will have on growth in the second quarter of 2012. ONS publishes its preliminary estimate of Q2 2012 GDP growth on Wednesday 25 July 2012.
Growth in the third quarter of 2012 is likely to be boosted by the Olympics themselves. ONS publishes its preliminary estimate of Q3 2012 GDP growth on Thursday 25 October 2012.

It also remains to be seen what impact the measures to boost growth set out in Osborne's Autumn Statement will have in 2012.

Budget 2012: Osborne to deliver Budget 2012 on Wednesday 21 March 2012
Osborne has set the date for the Budget 2012. The Chancellor will deliver the Budget 2012 on Wednesday 21 March 2012.

How will the eurozone debt crisis affect the UK economy?
Further ahead, David Cameron's decision to veto a "tax and budget pact to tackle the eurozone debt crisis" could have implications for longer-term growth prospects for the UK. The proposed fiscal compact that emerged - to take effect from March 2011 - is expected to create "a 'euro-plus' zone."

Jon Snow of Channel 4 News reported from Brussels on the day of Cameron's veto (Friday 9 December 2011):

The sense here is that Britain has finally left the top table, that a two-speed Europe is under way [with] the UK [...] in Division Two. [...] No one knows how damaging isolation may prove. Nor how advantageous.

Despite the agreement in Brussels, the "eurozone banking system [remains] on the edge of collapse" with a "collateral crunch" looming, the Telegraph reports

Further quantitative easing: A dead cert for 2012?
Further extensions to the Bank of England's programme of quantitative easing (defined by the Guardian as "the economic term for allowing the Bank of England to print more money") appear all but inevitable in 2012:

The minutes of the Bank of England Monetary Policy Committee (MPC) meeting for November 2011 were interpreted as pointing to the possibility of further quantitative easing in February 2012.
MPC member Martin Weale said there is "likely to be a strong case for extending the asset purchase programme" after the current programme concludes in February 2012.

Interest rates: Zero chance of a rate rise in 2012
While further quantitative easing seems a certainty for 2012, there would appear to be no prospect of interest rates rising from their current record low of 0.5% (at which level they have been parked since March 2009) over the course of this year.

The latest analysis of interest rate rise predictions compiled by ThisIsMoney.co.uk reports "the prospect of low rates for years," and finds that the "range of predictions are 2013 to 2016."

Inflation: On a downward path for 2012
Inflation now appears to have embarked on a long-predicted downward path - albeit slowly. Latest inflation data from ONS show:

Retail prices index (RPI) inflation stood at 5.2% in November 2011, down 0.2 percentage points from 5.4% in October.
Consumer prices index (CPI) inflation fell back to 4.8% in November 2011 (from 5.0% in October). CPI nonetheless continues to overshoot the Government's symmetrical target of one percentage point either side of 2%, just as it has for each successive month since December 2009.

Inflation is expected to fall back sharply in 2012 as the influence of the January 2011 VAT hike to 20% falls out of the inflation data:

RPI inflation will drop throughout 2012, from 4.1% in the first quarter to 2.8% by the fourth quarter, according to latest forecasts compiled by XpertHR (XpertHR subscription required).
CPI "inflation is likely to fall sharply to the 2% target or below" during 2012, according to Standard Chartered.

But as inflation falls, concerns about the possibility of deflation are becoming more widespread. The Guardian reports that "the head of the City's financial watchdog, Adair Turner, [recently] warned that the global economy was at risk of a deflationary spiral as the private sector and governments seek to pay off their debts at the same time."

Pay awards: On track for two years of below-inflation pay awards
Below-inflation pay awards mean that recovery is proving more painful than recession for many UK households. Recent analysis from the IFS suggests that if latest OBR projections prove correct, real household disposable incomes are likely to be lower by 2016 than they were in 2006.

Pay awards for UK workers - as measured by the XpertHR pay databank - have now been stuck below the level of inflation for nearly two years.

However, the gap between pay awards and inflation is narrowing slowly. The median whole economy pay award held steady at 2% (XpertHR subscription required) over the three months to 30 November 2011, according to XpertHR data. With RPI inflation falling back to 5.2% in November 2011, the gap between pay awards and inflation has consequently narrowed to 3.2 percentage points.

But it seems all but certain that pay awards will notch up their second anniversary of coming in consistently below the level of RPI inflation, when XpertHR publishes its analysis of whole economy reward trends over the three months to December 2011, later this month (on Friday 20 January 2012).

Pay prospects for 2012
So what of pay prospects for 2012?

Public sector workers can expect ongoing pay austerity. Osborne announced in his Autumn Statement that public sector pay rises will be capped at an average of 1% following the end of the current two-year pay freeze (which concludes in either April 2012 or April 2013, depending on department).
Private sector pay prospects for 2012 are more positive. Private sector employers expect across-the-board pay increases awarded in the 2011/2012 wage round to be worth 2.5% at the median, XpertHR Benchmarking research reveals (see chart). Two-fifths of private sector employers expect pay awards for 2011/2012 will be higher than the previous year's (XpertHR Benchmarking subscription required).

Unemployment to go from bad to worse in 2012
The UK unemployment rate has hit its highest level in 15 years, according to latest data from ONS:

The headline unemployment rate (on the ILO definition) rose to 8.3% between August and October 2011.
The number of unemployed people rose by 128,000, to 2.64 million.
ONS comments: "The unemployment rate is the highest since 1996 and the number of unemployed people is the highest since 1994."

Employment Minister Chris Grayling argues that the latest unemployment figures suggest that "the labour market is stabilising."

But few economic commentators appear to share Grayling's view. The majority expect the UK unemployment situation to get worse rather than better in 2012:

The BCC predicts that unemployment will hit 8.7% in Q4 2012 (2.77 million).
The CIPD expects unemployment to hit 2.85 million by the end of 2012, and to peak at 2.9 million in the first half of 2013.
Retail consultants CBRE predict that a "retail recession" is about to hit UK high streets, and estimates that retailers could cut up to 40,000 jobs over the next 18 months.
The unemployment rate for 2012 as a whole will be 8.5%, according to Goldman Sachs.
"The effects of the eurozone crisis will hit [unemployment] over the next six months [...] The eurocrisis excuse may well be needed, and be genuine, from March [2012] when the picture around January starts to emerge." This is the view of the CMPO's Paul Gregg.

Youth unemployment set to keep rising in 2012
Youth unemployment rocketed past the so-called "million milestone" in the closing months of 2011. Latest youth unemployment data show:

The number of unemployed 16 to 24 year olds in the UK rose to 1.03 million over the three months to October 2011.
The youth unemployment rate rose to 22.0% over the three months between August and October 2011.

The BCC predicts that youth unemployment will continue to rise this year. It expects that 42% of 16 and 17 year olds and 22.5% of 18 to 24 year olds will be unemployed by the fourth quarter of 2012.

Some commentators are now seeking to coin terms to describe the plight of young people in today's labour market. These include the following:

Generation U: This refers to "unemployed or underemployed undergraduates forced to take useless or unsatisfying work until they find their true calling," according to ThisIsMoney.co.uk.
The Precariat: Author Guy Standing defines "the precariat" as "a growing number of people across the world living and working precariously, usually in a series of short-term jobs, without recourse to stable occupational identities or careers, stable social protection or protective regulations relevant to them. They include migrants, but also locals."•

In Standing's view, the so-called "precariat" could "produce new instabilities in society [and] are increasingly frustrated and dangerous because they have no voice."

Will we see further social unrest in 2012?
The rioting and senseless destruction suffered by many UK towns and cities during August 2011 will be one of ugliest memories of last year for many people.

How likely is it that we might see further social unrest in 2012?

The risk of social unrest is increasing around the world, according to the ILO World of Work report 2011. The ILO warns that "the world economy is likely to create only half the jobs needed," resulting in a new and deeper jobs recession. Against this background, the ILO's new social unrest index suggests that "in over 45 of the 118 countries examined, the risk of social unrest is rising. This is especially the case in advanced economies, notably the EU, the Arab region and to a lesser extent Asia." The ILO finds that "unemployment is most strongly associated with the estimated risks of social unrest, along with disposable income."
In a sobering blog post, Frances Coppola argues that "austerity-driven recessions" across the eurozone could result in revolution or even war. She says: "[O]nce recession takes hold in the entire eurozone, people will start to see that their lives and their futures are being sacrificed on the altar of a political dream that is rapidly becoming a nightmare - and they will take action. We are already seeing political unrest in Greece, Spain and Portugal. As recession deepens, this unrest will worsen and may be violently repressed - a fertile ground for actual revolt and even war."

The UK establishment is taking the prospect of further social unrest in 2012 very seriously indeed:

The Foreign Office warns that instability in the eurozone could cause dangerous unrest.
Armed Forces planners believe economic issues arising from the eurozone crisis pose a "strategic risk" to the UK. General Sir David Richards said: "I am clear that the single biggest strategic risk facing the UK today is economic rather than military. [...] The country's main effort must be the economy. No country can defend itself if bankrupt."

The Treasury, meanwhile, is reportedly "considering plans to restrict the flow of money in and out of Britain to protect the economy in the event of a full-blown euro break-up."

Prospects for public sector strike action in 2012
It remains to be seen if this year will bring further mass strike action in protest at planned public sector pensions cuts, following on from the "day of action," which involved "up to two million UK workers" (according to union estimates quoted by the BBC) on Wednesday 30 November 2011.

Negotiations between the Coalition Government and trade unions are ongoing as 2012 commences, but appear close to conclusion.

At present, it would therefore seem that while mass public sector strike action in 2012 is possible, it is not necessarily probable.

Any ongoing public sector strike action will be firmly opposed by the Coalition Government. Cabinet Office Minister Francis Maude has suggested that the Government could be willing to consult on changes to the strike laws, if strike action proves "very disruptive."

A happy new year to all XpertHR readers!
Please allow me to take this opportunity to wish a happy and prosperous New Year to one and all! And do please check out XpertHR's 2012 HR Calendar to keep track of all the important HR events and add them to your Outlook calendar.

Economic prospects for 2012: The HR bloggers weigh in
Key bargaining statistics on pay, prices and employment for January 2012
The '2012' image at the top of this page was sourced from Wikimedia Commons.

Economic prospects for 2012: The HR bloggers weigh in

2012-01-01T00:02:01Z

We canvass the views of a number of leading UK HR bloggers and commentators on economic prospects for 2012.

Kevin J Ball, Mervyn Dinnen, Neil Morrison and Steven Toft have their say.

As a companion piece to XpertHR's January 2012 economic commentary article, I'm delighted to be able to present a round-up of economic predictions for the coming year from four leading UK HR bloggers:

Kevin J Ball
Mervyn Dinnen
Neil Morrison
Steven Toft

I am extremely grateful to each of these gentlemen for taking the time to contribute their personal expectations for the UK economy in 2012 and beyond. You can find out more about each contributor from the short introductory paragraph preceding their own words.

]]> Kevin J Ball: "For HR, I'm afraid it's more of the same for 2012."
HR Director Kevin J Ball is the author of the People Matters blog. Kevin wrote the classic first post in XpertHR's If I could change one thing about HR... series and also contributed his views on economic prospects for 2011 to last year's round-up, which he revisits here. You can follow Kevin on Twitter and connect with him via LinkedIn.

Last year I predicted a range of numbers for the economy. All were drawn from decent sources and all of them proved to be wrong. GDP (worse than predicted), Inflation (worse), pay settlements (slightly better) and unemployment (slightly better again).

This year I'm probably better sticking to something broad - things aren't going to get substantially better in 2012: we are probably back in recession right now, inflation may well tail off, unemployment will get worse and pay isn't going up anytime soon.

The saddest thing that George Osborne and I both learned last year is that all of this is largely out of the hands of UK Government anyhow. Look East for growth and investment and expect to pay an awful lot for it.

I also wrote about political risk. I characterised our politicians as tiptoeing between the stalling US recovery and the eurozone debt crisis and wondered if the coalition could hold.

Now it's 2012, and the US is showing only the faint signs of life you'd associate with a dead cat bounce and it looks like the markets may push the EU off a cliff before the end of the year.

Whether Cameron and Clegg have just rewound the UK and Europe to 1970 or are skilfully dancing the funky Gibbon with their own backbenchers is a matter of guess work. My money would be on Thatcher's children finally getting their way and severing our ties (the good faith ones if not the political ones, just yet) with our biggest market. Once more the coalition looks precarious on paper but they've been surprisingly steady so far. A little side note to come out of the recent EU summit was on employment law harmonisation. Nice work to get to after we've untied the Gordian Knot.

For HR, I'm afraid it's more of the same for 2012. Siege budgets and the Board stockpiling cash will make it really tough to do the development work most of us love.

No business is going to take a bet on anything other than the surest of sure things and we will all struggle with the depressing reality of redundancy programmes and other, even less savoury, regressive work.

The predicted erosion of employment rights in the UK is materialising but opportunity continues to exist for business to do good for themselves, the economy and society through work placements, apprenticeship schemes and other initiatives for tackling long-term unemployment (such as this). With a little imagination, this is one opportunity for innovation in HR that may take us past hand-wringing and into doing something useful.

Mervyn Dinnen: "A post-traumatic flat-lining economy suffering regular aftershocks."
It's a pleasure to welcome Mervyn Dinnen for his debut piece for XpertHR. Mervyn is the Content and Community Manager at Jobsite, and writes the T Recs blog. You can follow Mervyn on Twitter and connect with him via LinkedIn.

We are currently experiencing a post-traumatic flat-lining economy suffering regular aftershocks. Indeed, if a recession was defined as six months of negative growth rather than two successive quarters then we would have already had our double dip (in Q4 2010/Q1 2011), and would almost certainly be looking towards our next one at some stage in the next nine months. Any further deterioration in the EU economies will only push us further backwards.

Whatever the rights or wrongs of the economic re-engineering that we've seen over the last 30 years or so, we're now stuck with a consumption-based economy in which there is little appetite or available funds to consume.

Without increased consumption there will be little growth, and without growth there will be few new jobs. Anecdotally there are already signs of the feared job-loss recovery taking shape...although we are currently seeing the numbers of advertised positions holding up.

So for 2012 I can see only more of the same. No doubt there will be some positive quarters for economic growth (almost certainly around the time of the London Olympics).

But they will be followed by some negative quarters, with GDP remaining fairly flat and unemployment rising as a stalling economy eats into the confidence needed to create new jobs and businesses.

There are skill shortages in some industries and I can only hope companies that can hire do so, and take a chance on up-skilling those looking for work.

On a positive note, I do think there will be a growing creative spirit amongst the younger unemployed as they look for new ways to make money and begin to embrace a form of flexible self-employment.

Neil Morrison: "The story of the euro is a long way from over."
Neil Morrison is the Group HR Director at Random House, and the author of the Change-Effect blog. Last year, Neil contributed a superb series of guest blog posts to XpertHR, entitled What is commercial HR? You can follow Neil on Twitter and connect with him via LinkedIn.

I'm notoriously bad at predicting anything.
As I suggested on Twitter last month, if you want to know when to buy euros, the answer is the day after me. But I'm game for anything and you never know, if I keep things broad enough I might just get something right and not embarrass myself in front of the other more worthy commentators.

I guess the euro is as good a place as any to start. Clearly, we're yet to understand the full fallout of David Cameron's decision to veto the modification of the Lisbon Treaty. The story of the euro is a long way from over, this is just Act 1. I have to admit, whilst I don't agree with Cameron's reasons for not signing the modification, I believe in the longer term this may be a decision that looks wiser than was initially assumed. The eurozone is going dominate the news for the first half of the year. Watch out for more bad news - particularly from France.

Back in the UK we have to expect more carnage in the retail sector in the first quarter. I'm amazed that Comet and Blacks are still trading, but I think the malaise goes much further. I'm expecting a profits warning at my old employer Home Retail Group, much as I hope that it doesn't occur, and it wouldn't surprise me to see other big high street names seriously struggling. The fear is, of course, that these will lead to store closures and resultant job losses in an already difficult labour market.

And the labour market is an area that really worries me for 2012. The unemployment figures are nothing new, we know that they are looking grim - particularly when it comes to youth unemployment - and I don't expect to see any significant improvement. What worries me more, however, is that at the same time that we have high unemployment, we are also seeing report of recruiters being unable to fill the vacancies that they have. This "skills gap" or "attitude gap" is going to be the subject of much more attention next year.

But don't expect any quick fixes. We have serious structural labour market issues and they won't be sorted out in months or perhaps even years.
On the upside? Well there isn't a huge amount I'm afraid. The Olympics SHOULD bring some comfort, but I fear this will be predominantly centred on London and the South East.
The Euro championships MIGHT see a slight upturn in consumer spending (and confidence if Rooney manages to stay on his feet) and a mild winter and a warm spring and summer COULD just see us through the worst of what I believe will be an economic flat-line at best or a slight worsening at... well, worst.

Not much to be cheerful about, not much to look forward to. But I'd like to leave you with this. There are a lot of people and a lot of countries that are worse off than us. I know that won't seemingly make the next year any easier, but remember that we have a lot of things going for us, as a country, as a society and as an economy. Things will pick up, we all know they will, it is just a question of when.

Steven Toft: "The outlook is for an aging, low growth economy"

It is my privilege to welcome another HR blogger/writer making their XpertHR debut here, in the form of Steven Toft. Steven is a Director at Crucible Consulting, and is a contributor to the Guardian and the Evening Standard. You can connect with Steven via LinkedIn.

For western economies the financial crisis could not have come at a worse time.

On its own it would have been bad enough but high debts, both public and private, aging populations and a shift in the balance of economic power to emerging economies have compounded the problem. Public debt goes up in all recessions but, in the past, high economic growth has enabled us to outrun it. Post-recession growth years of 3% and 4% increased tax revenues and enabled Britain to reduce its debt-to-GDP ratio.

That is unlikely to happen this time. Neither the OECD nor the OBR expect Britain to manage even 1% growth in 2012 and the OECD only predicts 1.8% for 2013.

The longer-term forecasts don't look good either. The OBR's fiscal sustainability report doesn't envisage growth reaching 3% for any year between now and 2030. Some time towards the end of this decade, the effects of an aging population will start to put severe strain on the public finances, adding an additional 2% to 5% of GDP onto public spending.

Just to get the UK's debt down to pre-recession levels by 2050 will, say accountants PwC, require a further £20bn in spending cuts, or equivalent tax increases, by the end of this decade.

The outlook, then, is for an aging, low growth economy, carrying levels of debt which would have been unthinkable only three years ago. Martin Sorrell's quip about a 'bath shaped recession' was prescient. A sharp fall, followed by a long period of stagnation, the bath's corrugated bottom representing a series of small peaks and troughs, before the gradual recovery kicks in.

The Long Depression of the 1870s and 1880s is perhaps a better historical parallel for the next decade than the Great Depression of the 1930s. Austerity will be the new normal for some time to come.

Pay bargaining statistics: January 2012

2012-01-01T00:00:01Z

We present the January 2012 XpertHR Salary Surveys pay bargaining statistics table, which provides the latest monthly summary of key data for pay specialists.

]]> XpertHR Salary Surveys pay bargaining statistics: January 2012 Measure How calculated Date Latest INFLATION

Retail Prices Index (RPI) % change over 12 months Nov 11

5.2%

Consumer Prices Index (CPI) % change over 12 months Nov 11

4.8%

BASIC PAY SETTLEMENTS

Whole economy - median Annual awards over three months Nov 11

2.0%

Whole economy - upper quartile Annual awards over three months Nov 11

2.5%

Whole economy - lower quartile Annual awards over three months Nov 11

0.0%

EMPLOYMENT

Unemployment ILO measure: jobless and seeking work Oct 11

2.64 million

Redundancies Number of redundancies, 3 months to Nov 11

161,000

Vacancies Number of vacancies, 3 months to Nov 11

455,000

Sources: Inflation: ONS; Pay settlements: XpertHR pay databank; Employment: ONS.

MPC minutes state pay growth of 2.3% in Q3

2011-12-21T10:46:19Z

The Bank of England has released the minutes of the Monetary Policy Committee (MPC) meeting on the 7 and 8 December 2011 (PDF format, 54KB) - they state there has been little change to the balance of risks to UK activity and inflation over the past month.

Therefore, as expected, the bank rate remained at 0.5% and there was no change to the asset purchase programme, which commenced in October.

Although CPI inflation remains above target, the MPC once again said there was "little sign" that this has begun to generate rapid wage growth.

]]> Also on the subject of pay, the minutes' reveal: "Whole economy total annual pay growth had been just 2.3% in the third quarter. This remained well below pre-crisis rates, although the continued weakness of productivity growth meant that the growth of unit labour costs had been closer to its historical average rate."

They continue: "A substantial proportion of pay settlements were agreed between January and April. The Committee's expectation was that by then demand would have slowed and inflation would be falling, which might help restrain pay growth."

On the topic of quantitiative easing, the Committee is still gathering evidence on the impact of its purchases on asset prices and on the economy. The minutes' state: "Assessing the effects of the current programme was complicated by the volatility in financial markets."

Pay growth ends the year on a solemn note

2011-12-16T00:01:00Z

Pay increases are stuck firmly at the 2% mark, according to the latest analysis from pay specialists XpertHR [£].

The median basic pay award across the whole economy stands at 2% in the three months ending 30 November 2011, unchanged for the eighth consecutive rolling quarter.

]]> Pay awards effective in the latest analysis period include those affected by the national minimum wage - which saw a 2.5% increase to the adult rate from 1 October. Our sample includes six major retail companies that awarded a 2.5% increase to all staff - but also several others that have applied the 2.5% increase to their lowest grades only. Among this latter group, some have frozen all except the lowest rates, while others have applied lower increases for higher paid employees.

Pay freezes continue to feature in our analysis, but are concentrated in only a handful of sectors. Among our latest sample of pay settlements, almost all the recorded pay freezes are from employers in the not-for-profit, public and retail sectors. Just one manufacturing company reported a pay freeze.

Pay settlement levels in the manufacturing sector continue to outpace those elsewhere in the economy. The median manufacturing settlement stands at 2.5%, compared with 2% in the services sector.

Pay awards and inflation

Pay awards continue to fall well below the level of inflation. During 2011 retail prices index (or RPI) inflation is expected to average 5.3%, but just 2% of 2011 pay awards on XpertHR's database of almost 1,400 awards were at or above this level. So 98% of pay awards didn't keep up with the increase in prices during 2011.

Although RPI inflation is expected to fall to an average 3.5% over the course of 2012, pay settlements are again unlikely to keep pace with inflation.

XpertHR Pay and Benefits editor Sheila Attwood said:

"Although inflation is set to fall further in the new year, it will remain at a level that is unattainable for most employers to match in pay packets. We expect to see improving pay settlement levels in 2012, but pay rises will continue to lag inflation."

2011 bonus payments worth 6%

2011-12-16T00:01:00Z

Bonus payments made in 2011 were worth a median 6% of salary, according to a survey conducted by pay analysts XpertHR [£]. When similar research was conducted in 2008 (ahead of the recession), the median bonus payment was 10.1% of salary. However, bonus payments are expected to fall in 2012, and be worth a median 5% of salary.

]]> Only around half of the organisations surveyed operate a cap on the level of bonus payments - ranging from 10% to 150% of salary. Open-ended arrangements were more prevalent among financial services and retailing companies.

The payment pot for most bonus schemes is linked directly to company profits, with individual payments determined through an assessment of employee performance. The most common method of distributing payments is to allow management discretion, followed by operating a forced distribution of payments.

The report, based on a survey of 91 bonus schemes, reveals that the main aim of bonus schemes is to "promote and reward sustained high levels of performance". The majority of organisations reported that their scheme met this aim either partially or in full.

Given the amount of scrutiny bonus schemes have come under lately, it is perhaps surprising that only one-third of organisations have reviewed their bonus arrangements in the past year. 15% of schemes have never been analysed.

Survey respondents also identified a number of problems with their bonus schemes. Chief amongst these was employee disappointment with the size of payments, mentioned by almost half the organisations surveyed. Around one-third also cited a lack of employee understanding of the scheme; and a weak link between performance and payments.

Despite their problems, many survey respondents feared that removal of their bonus scheme would damage their ability to recruit and retain staff, while others mentioned a loss of employee morale, and a loss of competitive edge. However, a handful of survey respondents said that little or nothing would happen if they scrapped their current bonus scheme.

When asked what advice they would give other employers on operating a bonus scheme, communication was mentioned most often. This is best summed up in the words of one respondent: "Communication, simplicity and transparency are key."

XpertHR Pay and Benefits editor Sheila Attwood said:

"Bonus payments made to many junior employees are almost universally far lower than those received by employees occupying the top tiers of management. Nevertheless, they can represent a significant, if variable, element of total remuneration."