Pay bargaining agenda 2013: manufacturing and production

Although, historically, the annual pay round starts on 1 September each year, most manufacturing settlements actually have January anniversary dates. As we approach this important point in the bargaining calendar, XpertHR gauges the mood of key protagonists.

As a new pay round dawns, wage setters on both sides of the bargaining table are considering their positions and weighing up their options. Manufacturers with pay reviews due in January 2013, the most important month in the negotiating calendar for the sector, are likely to be farthest down the negotiating track. Firms with anniversary dates falling in the spring of next year will follow closely behind, many undoubtedly taking their cue from companies that have already settled by the time their turn arrives.

It is worth noting that none of the wage setters contacted by XpertHR anticipate an upsurge in strike action over pay over the next 12 months, with several commenting that the unstable economic climate, together with growing job insecurity, will stifle any militancy. A renewed bout of "wage realism" among employees, similar to that seen in recent times, appears to be on the cards.

While an organisation's financial performance remains the single most important influence on bargaining outcomes (as identified by the findings of the XpertHR annual survey of pay prospects 2012), both management and trade unions will also be keeping a wary eye on data sets issued by HM Treasury (external website), the Bank of England (external website) and other forecasters. Information on the prospects for economic growth and projections for retail prices index (RPI) and, in some cases, consumer prices index (CPI) inflation will be of particular interest.

Against an economic background that, by common consent, can be best described as uncertain, XpertHR asked a number of manufacturing employers and trade unions to give us their predictions for the next 12 months for the following industries:

• construction;
• electricity, gas and water;
• engineering and metals;
• food, drink and tobacco;
• general manufacturing; and
• paper and printing.

A separate article reviews the prospects in private-sector services, while XpertHR has recently published a review of 2011/12 pay settlements as well as pay forecasts for 2013.

Construction: economic uncertainty influential

The Federation of Master Builders (FMB) says there is little prospect of a pick-up in building activity in the foreseeable future, with further public spending cuts likely to make matters worse: "We anticipate tough times ahead. There is still a good deal of uncertainty, which means that people are unwilling to spend and this hits construction, even though there may be a gradual easing of credit conditions over the next 12 months. The continual flow of bad economic news has not lightened the mood. Coming out of recession, even if it means only marginal growth, would help, as would a resolution of the eurozone crisis. No recession lasts forever and growth will return at some point. People just need to believe the end is in sight.

"Many employers say they are just about keeping their heads above water, but are trying to retain skilled staff on the assumption that a recovery will take place in the not too distant future. We think there will not be a noticeable, sustained, pick-up in construction activity until 2014."

There was no settlement between the FMB and the Unite trade union on the 2012/13 pay award as determined by the Building and Allied Trades Joint Industrial Council, and so rates remain unchanged on those in force in June 2011. The two parties are due to meet again early in 2013 to commence talks on the 2013/14 deal. With little prospect of meaningful growth, however, the FMB says that many employers will simply not be in a position to increase wages, certainly not significantly, next year.

Elsewhere, Unite is pursuing a claim for a one-year deal yielding a minimum 7% increase on all rates, to be effective from the first Monday in January 2013, for the 50,000 electricians, labourers and technicians covered by the Joint Industry Board for the Electrical Contracting Industry. In addition, it is seeking a phased reduction in the standard working week from 37.5 to 35 hours without loss of pay, as well as an increase in annual holiday entitlement of three days to 25 days.

Electricity, gas and water: falling inflation and job insecurity key

The Unison trade union says that growing job insecurity in the utilities sector, combined with an anticipated fall in headline inflation, is likely to act as a brake on the pace of wage bargaining in the coming months. Most employers continue to be highly profitable, but it says there is little sign that this will be translated into pay awards significantly above those achieved in 2011/12, which were generally pitched between 2% and 3%.

The union's negotiators will be approaching the bargaining table armed with the argument that members' wages have fallen behind RPI inflation, and so employees are experiencing a real-terms cut in their living standards. In addition to negotiating what it regards as "acceptable" pay awards, Unison will also be keeping a wary eye on pensions auto-enrolment in an attempt to persuade organisations to introduce schemes with employer contributions in excess of those required by statute.

In the water sector, employers have argued that pressure from the industry's regulator Ofwat (external website), which sets limits on the prices firms can charge, is likely to mean that pay awards will have to be moderated in the coming months. The union disputes this conclusion, pointing out that companies are likely to remain profitable despite regulation, and wage settlements should reflect this.

Unison says it will be looking for pay awards above the headline rate of inflation, although any wage claims will need to be realistic - "certainly in the face of continued economic weakness".

Engineering and metals: doubts persist

The EEF is an employers' association representing several thousand UK manufacturers. This time last year, its chief economist, Lee Hopley, told XpertHR that the unsettled economic climate was likely to be a key factor shaping the outcome of the 2011/12 bargaining round. This has largely proved to be the case, although the overall picture was somewhat mixed, with motor manufacturing doing particularly well in terms of pay settlements.

While the overall business environment has improved recently, the EEF says that settlements in engineering and metals over the 2011/12 wage round as a whole have come in at a median of 3%, unchanged on the position 12 months ago. The uncertain trading climate at home and abroad has meant both employers and their workers have taken a pragmatic approach to wage setting, and this is set to continue for the foreseeable future, the EEF states.

Indeed, Hopley suggests continuing economic instability, combined with an anticipated fall in the headline rate of inflation, will act to depress settlement levels over the next year or so. As a result, pay deals are likely to come in at between 2% and 2.5%, the EEF predicts. If the economy continues to contract, however, there may be a pick up in the number of pay freezes. The EEF adds that the previous bout of wage standstills in engineering and metals, which took place against the background of relatively high inflation, led to a real-terms cut in earnings and a period of "catch-up" may become apparent in the coming months.

A shortage of skilled workers could push up the basic wage rates of these employees, Hopley says. As an alternative, companies may opt for individual, non-consolidated, merit-based payments and productivity bonuses to recognise the contribution of these employees without necessarily increasing the paybill permanently.

Food, drink and tobacco: pay and employment to remain static

Settlements over the 2011/12 bargaining year in food, drink and tobacco came in at 3%. This means that the midpoint increase was both 0.5 percentage points above that in the economy as a whole and the sector's median 12 months ago. It is the third year in a row that the industry's settlement levels have risen.

According to the Food and Drink Federation (FDF), the body representing employers, the combined effect of labour market regulations and restricted access to investment means that 2013 will continue to be "tough" for food and drink businesses. The FDF anticipates commodity prices will increase again over the next 12 months and the retail environment will remain "highly competitive" as supermarkets try to retain market share. The focus, therefore, will be on making cost and efficiency savings, rather than expanding business and, as a result, sectoral pay and employment levels will most likely remain static, the FDF says.

General manufacturing: a mixed bag

The Glass and Glazing Federation (GGF) represents companies that make, supply or fit, glass and glass-related products, and it is party to the Flat Glass Industry National Joint Council, which determines the pay and conditions of an estimated 6,000 drivers, glaziers and production workers.

Despite long-established firms holding up reasonably well during the recession, the GGF says the number of company failures is on the rise and predicts there is unlikely to be a sustained recovery before the end of 2013 at the earliest.

In advance of the national agreement's January 2013 anniversary date, the GGF has been canvassing the mood of members with regard to the forthcoming pay negotiations. It says there is an almost universal consensus that there should be a 12-month pay freeze due to the continuing problems faced by the industry. The GGF reports that, in some instances, employees are now being given the stark choice between a pay cut, in an effort to keep the company afloat, and job losses. This means a small number of firms have had to move away from nationally agreed wage rates, although the GGF says that most employees have accepted this once they had seen the state of the order book. It predicts this trend will continue into 2013.

The GGF expects the trade unions to lodge a claim for an above average pay increase, but says this is likely to be unaffordable. The GGF adds that, in previous years, they have tended to put forward a "shopping list" of improvements to terms and conditions but, as was the case in 2012, it envisages the unions to again concentrate solely on improving basic wage rates.

The anniversary date for the Ceramic Joint Council national agreement, covering the UK pottery industry, is 1 August 2013, so it is a little to early to consider in detail how negotiations will pan out next year. However, the employers' side expects profitability to hold up reasonably well in the face of the generally uncertain economic climate and so the eventual settlement may end up at or around the 2.5% mark, as it did in 2012.

The local pay negotiations that have taken the place of those previously conducted under the auspices of the Building Brick and Allied Industries National Joint Council, which was disbanded during the course of the 2011/12 wage round, are heavily influenced by the fortunes of construction, in particular house building. As we have seen above, the construction sector is in the doldrums and this is likely to put a downward pressure on settlement levels, although it remains to be seen whether or not efforts by the Government to stimulate the housing sector will translate to a noticeable pick-up in activity.

Paper and printing: tough times ahead

In order to gauge the pay and industrial relations prospects for the paper, print and packaging industry, XpertHR talked to Steve Sibbald, Unite's national officer for the sector.

The past few years for the UK's printing and packaging industry have been characterised by tough times, with commercial print bearing the brunt of overcapacity and falling demand. Scanning the 2012/13 bargaining horizon, Sibbald says there is little chance of substantial change unless the economy picks up at a much faster rate than most forecasters currently predict. "Confidence in commercial print has pretty much flat-lined, and it has been in this position for a number of years now," he points out.

"Until demand picks up, it will remain tough and our bargaining power will be relatively weak. We have members standing by idle presses in both commercial print and newspapers, and employers know we as a union are not in a strong position when it comes to wage negotiations. Realistically, the only way the situation is going to change, at least in the short term, is when capacity is taken out of the industry. This is not an easy thing for a trade union to say, but it is reality," he adds.

On the plus side, Sibbald says that most employers have been immune from the effects of public-sector spending cuts, save for a small minority that rely on local authority printing contracts.

The union intends to continue lodging pay claims based on headline RPI, rather than the Government's preferred CPI measure. This remains the policy of the union's print and packaging executive committee. The only deviation from this in recent years was when RPI was in negative territory in the spring of 2009, when Unite nimbly moved to CPI, before reverting back to RPI when it moved above zero towards the end of that year - a ruse that was quickly picked up on by employers.

In the continued absence of national pay negotiations with the British Print Industries Federation (BPIF), Unite, following consultations with its regional officers and its national industrial sector committee, has once again issued a model pay claim for negotiation at local company level. The union says, based on headline RPI, that a 3.8% increase "is a reasonable guide for pay settlements" and claims should reflect this.

Looking at prospects for the coming bargaining round, Sibbald anticipates it will be easier for the union to secure deals at around headline RPI by virtue of the fact that inflation is on a downward trajectory. The exception may be in commercial print, which, the union says, continues to struggle and so settlements are likely to be pitched lower than elsewhere, with real-terms pay cuts a distinct possibility. It is likely that the same situation will pertain within newsprint.

Despite the industry's undoubted problems, Sibbald says that there has been little appetite among print employers to derecognise the union. Indeed, while absolute membership has fallen, densities are increasing as employees seek protection, and he expects this trend to continue for the foreseeable future.

The outlook is better in the paper and packaging sector, Sibbald says, as it is not so burdened by overcapacity. Indeed, firms are buying up competitors and investing heavily in new plant and machinery. Here, he predicts settlement levels will at least match, and possibly exceed, headline RPI over the coming bargaining year.