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Wage restraints? Not in my back yard!

With the squeeze on household incomes set to intensify with a typical ‘eye-watering’ energy price rise of 54% expected shortly, the Bank of England boss Andrew Bailey has been cautioning workers not to ask for large pay rises, even though inflation is expected to peak at around 7.25% in April. Wage restraint is seen as an important factor in keeping a grip on inflation and stabilising the economy (Mr Bailey apparently started on a £575,538 salary in March 2020 so we wonder just how much he’ll be feeling the pinch himself).

As you would imagine, there are a lot of people who don’t agree.

Cast your mind back to the end of last year, Tesco was facing strike action just before Christmas from Unite distribution workers. People working in this sensitive supply chain area were offered what was deemed an ‘offensive’ 4% pay increase as the retail price index rate of inflation stood at 6%. Where did they end up? – between 5-6%.

In the last few days, Tesco Chairman, John Allan, was asked if the company would follow Andrew Bailey’s advice on wage restraint, the answer was, ‘No, absolutely not’. Mr Allan went on record to say that in their current negotiations with store colleagues, Tesco was expecting a similar result to the distribution negotiations in December – 5-6%. At least the Union knows what their walk away position should be now!

There are times when we’re negotiating, when changes to the current situation mean we need to revise our objectives and take a different course of action. If we know that time will adversely affect our position, making credible realistic proposals early may help to speed the process up delivering a more favourable deal now compared to a worse one later on. It takes skill to know when to move, by how much and what to get in return.

From Tesco’s viewpoint, whilst I would think that ideally they would prefer lower wage costs, signalling the potential of a deal now at 5-6% with another set of their workers has a number of benefits. Firstly, it may well help to keep in place their people resource – something that retailers are struggling with during the current ‘great resignation’. Secondly, getting a deal done now may well mean that they’re less likely to be put under pressure for an inflation matched increase of 7.25% in April. Thirdly, a proposal of 5-6% now is supported and underpinned by the principle of precedent – as agreed earlier with their distribution people. Who knows, they may also get some of their staff spending more of their increase in store as well!

In summary, if you objectively evaluate your position and you find it’s not sustainable, making a pre-emptive strike with a realistic proposal may prove to be attractive to the other side.

I suspect that this pragmatic approach may well be adopted up and down the land. As a result, a rate of 7.25% inflation in April may well become a self-fulfilling prophecy of course!

It will be interesting to see what happens to Andrew Bailey’s pay when his next anniversary comes around in March – I’m guessing any increase won’t be anywhere near 7.25%, we’ll wait and see!

Sam Macbeth, 8th February 2022

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