Pay in small and medium-sized enterprises has risen by an average of 10 per cent in the past year, according to a major survey by ISME. This is at least 20 per cent faster than in larger enterprises and almost double the rates provided for in the Programme for Prosperity and Fairness.

The survey is based on responses from 300 companies employing almost 10,000 people and the results were processed by AMK Consultants. Traditionally SMEs have paid lower wages and provided poorer fringe benefits than larger employers, but the survey findings suggest they are now having to compete in a tightening labour market.

But the pay gap remains substantial. ISME's head of research, Mr Jim Curran, said yesterday that "typical" wage rates in the survey suggested an average of £13,100 was paid by SMEs, compared with the average industrial wage of £16,500. "Our biggest fear is the trend in wages in excess of the PPF and in excess even of the present high inflation rates.

"If it continues our companies will become uncompetitive and are effectively left wide open if sterling depreciates." About 30 per cent of exports go to Britain but Mr Curran estimates the British market accounts for 60 per cent of SME exports.

The report shows wage rates for manual workers rose across all SME sectors in the year ending July 1st. The greatest increase was services at 10.8 per cent, followed by distribution at 10.6 per cent and manufacturing at 8.9 per cent. Comparable figures for office staff show pay rose on average by 9.4 per cent. Again services saw the sharpest increase at 10.2 per cent, while manufacturing and distribution both rose by 8.6 per cent.

But unskilled workers in manufacturing SMEs still have average basic pay rates of £10,140, semiskilled workers £12,168 and skilled workers £14,561. The respective figures for services are £10,261, £12,431 and £16,629. In distribution, unskilled workers earn £11,661, £13,182 and £17,236. Junior office staff earn £10,000-£10,700, executive staff £14,250-£16,240.

Besides pay rises, more SMEs are providing fringe benefits. In the manufacturing sector, 30 per cent of firms are offering pension schemes, compared with 18.4 per cent last year. There is a similar trend for other sectors.

Mr Curran says that with labour costs accounting for around 50 per cent of turnover, and profit margins averaging 6 per cent, there is little leeway for wage drift. ISME fully supports the SIPTU demand for all workers on £10,000 a year or less to be taken out of the tax net.