Pay increases

Teachers 3.5% Health service workers 3.6% Police �400 a year (proposed) Public sector average 5.2% Private sector average 2.9% NB: Figures are not all for the same period

Above-inflation pay deals for teachers and health workers were likely to boost the growth figures.

Meanwhile another survey from the Confederation of British Industry (CBI) has found that earnings are rising faster in service industries than in manufacturing, reflecting the contrasting fortunes of the two sectors.

"Public sector employees in a range of occupations are set to receive substantial pay increases in 2002 as employers seek to address recruitment and retention issues," the IDS report says.

The government has had to raise wages in order to attract and keep workers in education and the health service.

Teachers in England and Wales are set to get a pay rise of 3.5% later this year, while many health service workers in England and Scotland are to get a 3.6% pay increase from April.

'Two-speed' economy

The latest government figures showed the three month average earnings growth to December was 5.2% in the public sector, but only 2.9% in the private sector.

The IDS found that pay increases for staff have often been much higher than the headline percentage settlement.

It also found that over the past 18 months there has been a big rise in the number of long-term pay deals across the public sector, usually lasting for three years, and that these have been encouraged by the Treasury as they helped forward planning.

"Almost all of the long-term deals that we have examined involve substantial uplifts to pay over the lifetime of the agreements, at a time of very low inflation," the IDS said.

Two-speed pay deals

The CBI survey found that the so-called 'two-speed' economy was being reflected in the pay rises seen in the service and manufacturing sectors.

Manufacturers are battling a harsh global slowdown and a squeeze on profits is holding down pay awards

Ian McCafferty CBI

It found that manufacturing pay rises averaged only 2.3% in the three months to January, the lowest level since the survey began in 1980.

Meanwhile the three month average for the service sector edged up to 3.8%, compared to 3.6% in the three months to December.

"Manufacturers are battling a harsh global slowdown and a squeeze on profits is holding down pay awards against a backdrop of low inflation, " said Ian McCafferty, CBI chief economic adviser.

"But service sector pay awards are fairing better, reflecting the more buoyant consumer market."