What business can learn from the UK’s public sector strikes

It would be hard to handle a labour dispute as cack-handedly as the government is managing the one with the rail union. But even so, business leaders should take note for their own wage negotiations.

Many elements of the impasse between ministers, Network Rail and the RMT union are specific to the railways. But in essence this is a dispute about pay and productivity against a backdrop of an inflationary squeeze on both employers and employees that is unprecedented in most of their memories.

True, most companies don’t face much risk of their employees going on strike. Of the 23 per cent of workers that are unionised, only 40 per cent are in the private sector and many will be in privatised monopolies.

And private sector employers have been better than public sector ones at raising pay. The RMT wants a 7-8 per cent pay rise in the context of inflation that has already hit 9.1 per cent and is set to ratchet up to 11 per cent plus by October. Private sector total pay was 8 per cent higher in the three months to April than a year earlier. In the public sector, it was 1.5 per cent.

Some of the discrepancy is down to bonuses, especially those in the City after a boom year last year.

But even as inflation expectations have climbed, bosses’ predictions of what is needed to satiate employees are oddly falling.

In the Bank of England’s latest survey of finance officers, businesses said they expected 4.8 per cent pay growth for the year ahead against 5.5 per cent for the one just gone. And while employers surveyed by the Chartered Institute of Personnel and Development expected this spring to put up basic pay by the biggest amount since at least 2016, that amounted to only a 3 per cent rise.

Businesses might get away with that. But it’s an extremely tight labour market, and disgruntled workers can always walk. Salary growth for new starters far outstrips that of existing employees. There is only so big a gulf employers can allow to open up between flighty recruits and loyal employees.

Efforts to bridge the gap in employees’ incomes look increasingly inadequate. Take Rolls-Royce, where unions just rejected a £2,000 one-off bonus (and a 4 per cent pay offer). Isolated bonuses made sense three to six months ago when inflation looked like it might be transitory and a payment basically covered the April uplift in energy bills, says Neil Carberry of the Recruitment & Employment Confederation. But employers will now be under far greater pressure to push up pay overall or risk not being able to recruit — as companies in the hospitality and aviation sectors are finding.

Realistically, that means raising pay more often. In a survey of employers last month, consultancy Willis Towers Watson found 14 per cent now expected a mid-year review, a figure that seems likely to increase. Given the uncertainty of the outlook for both growth and inflation, it’s probably easier for businesses to stomach two 3 per cent pay rises spaced six months apart than a straight 6 per cent jump.

Employers can improve employees’ lot in other ways: better shifts, support with childcare costs or fewer office days. Being upfront about business constraints, cost pressure or productivity needs helps too. But the government, for political posturing reasons, has ramped up the rhetoric about the need to squeeze public sector pay to keep inflation under control.

Woe betide any boss — or BoE governor — who tells employees the same. But executives may already have committed another alleged government error: “one rule for them, another for the rest”. Boards managed to put up executive pay by 34 per cent last year. Yes, it was a rebound from pandemic lows. But look at the optics: a boss can’t take a 30 per cent rise while claiming everyone else should stomach 3 per cent. J Sainsbury’s refusal to sign up to the real living wage for contractors is a similar pitfall.

Tensions are inevitable across industry. But it should not be hard for employers to better the government if they pay up when they can, are upfront about when they can’t, and play nice.

cat.rutterpooley@ft.com
@catrutterpooley