Both employers and trade unions have approved the pay terms of the second part of Sustaining Progress, offering increases of 5.5 per cent over 18 months. Nor was there any surprise in the accompanying statements. IBEC, representing the employers, said the amount was at the limit of what employers can afford and that many would be pleading inability to pay.
The trade unions, meanwhile, have indicated that their acceptance was helped by assurances from the Government that further tax relief was on the way in the Budget and emphasised that this must now be delivered on.
On balance, the continuation of the partnership approach through a wage agreement for the second part of the Sustaining Progress agreement is welcome. It will provide certainty for business and should also deliver wage increases ahead of inflation for employees. Given the reasonably strong position of the Exchequer finances, the Government should at least be able to index credits and bands for inflation on Budget day. Because it has not done so over the past couple of budgets, the income tax burden has edged up. Meanwhile, so-called "stealth" taxes and charges have also hit households.
While the Government is correct to plan to index the income tax system for inflation in next December's Budget, the "nod and a wink" basis on which the issue is discussed in public by senior ministers and trade unionists is unsatisfactory. There is no reason why the Government should not plainly state that it intends on Budget day at least to index bands and tax credits for inflation, provided some economic setback does not hit the Exchequer figures. This would do nothing to damage the Budget process. Indeed, there is a strong case for a reform of the entire budgetary procedure to allow discussion and assessment of the annual plan before it is finalised.
Greater transparency is also needed in another part of the partnership process - public sector pay benchmarking. Under Sustaining Progress, another round of benchmarking is due to start next year and be completed in 2007. It is essential that, unlike the first round, this is done in a open way and that productivity improvements in the public service are a clear part of the process - and are not just tagged on at the end of the negotiations.
Fortunately, the new pay agreement is negotiated as the economy is starting to pick up and achieving higher growth. This should allow most employers to afford the increase and ensure employment continues to rise. In this environment, it is essential that the needs of the disadvantaged are catered for in the forthcoming Budget and in wider Government decisions.