Pay awards must be held back, warns CBI

EMPLOYERS need to rein back rising pay settlements before Britain's competitiveness suffers, the Confederation of British Industry warned yesterday, writes Diane Coyle.

In a joint review of pay with the accountancy firm Ernst & Young, the CBI said pay settlements were creeping up and now averaged 2.7 per cent in manufacturing and 3.3 per cent in services. Although British costs per unit produced had fallen nearly 1 per cent in the past year, some competitors such as Germany and the US had done better.

Howard Davies, the CBI's director-general, said: 'We have to keep an eye on the international dimension. We have started to lose competitiveness again.'

Sir Bryan Nicholson, CBI president, said: 'Our arguments on pay apply from the shop floor to the boardroom.' He said directors' performance-related pay should 'not be based on fragile criteria'.

The report also highlighted non-pay elements such as pensions and insurance, which account for up to a quarter of labour costs. It suggested companies could reduce spending on company cars, medical insurance and sick pay.

They should also consider moving away from final salary pension schemes as the cost of meeting proposed new pension fund solvency requirements could run to several billion pounds a year. Sir Bryan said: 'We are lobbying the Government and hope the legislation that emerges from the pensions White Paper will take account of our concerns.'

The CBI called for public spending on security in Northern Ireland to be switched to investment and economic development for a transitional period of five years. Additional expenditure on security, above other public spending, is pounds 400m a year.

The employers' organisation wants to see co-operation between north and south on transport, energy and tourism - areas where it said an all-Ireland approach would reduce costs and create jobs.

At yesterday's meeting of the CBI council David Hunt, minister for public service and science, announced that the Government's market testing programme would be worth pounds 860m this year, pounds 30m more than last.

He said that since the launch of the programme private sector firms had won contracts worth pounds 850m out of pounds 1.25bn worth of work up for grabs.