September 18, 2008

An Industrial Relations Crisis Looms

By Bones, Chris

Trade unions are using rising prices and workplace dissatisfaction to rebuild their muscle We have already lived this year with the 10p tax crisis, the credit crisis, the food and fuel crises. Even more worryingly though is that we now face what I believe is the early signs of an impending industrial relations crisis.

The consequences of being part of the global economy and a beneficiary of a globally-benign credit regime that has dramatically changed our economy into one reminiscent of the 1950s are going to be very severe. I think there is a significant chance of recession and I think the emerging posture of a resurgent trades union movement could take us there very quickly.

Families at every level in society are feeling the combined impact of globally-driven price increases in commodities. These woes are compounded by the inability of the Bank of England to bring down the cost of servicing debt to both individuals and corporations for fear of allowing back inflation at levels we haven't seen for over a decade.

This combination of pressures is reducing the available resources in family wallets not just for the second home or second holiday, but increasingly for the basics such as fuel, food, mortgage repayments, loan and credit card repayments. The more basic the needs that are under threat, the more likely that people will be persuaded to put more at risk to protect themselves.

In these circumstances, the pressure is on for far greater levels of pay increase to address the impact of a global and possibly long- term structural change in the price of food and fuel. Shell's lorry drivers achieved just such a pay increase-11%-but this has lit a fuse. How long the fuse is will depend on many factors, but have no doubt it is a fuse and the explosion that could result will push us right into a deep and damaging recession.

The unions have rightly spotted their opportunity: for so long excluded by both Tory and Labour governments, they are now heading back to Downing Street for beer and sandwiches (or the 21st century equivalent) with apparently an agenda for change in employment law and in employee rights. But they are not just back in Downing Street, they are back in the workplace using general dissatisfaction with the economy as a lever for rebuilding their industrial muscle.

The public-sector restraint imposed by the Government is under threat. We are in for a summer of strikes and if the Government continues to trail in the polls the unions will push hard for concessions. If they concede as they had to over the 10% tax fiasco the impact on public finances will be harmful: if this happens don't look for a tax cut in April, expect a series of tax rises.

This will inevitably have an impact on the private sector. Company profits haven't been hit yet but they will be and the retailers are already showing some worrying signs. So the next few months are critical in industrial relations in a way not seen since the early 1980s. A seriesofhigh-profileconcessions by the currently cash-rich will set an agenda for redundancy that will run right through the next two years.

For businesses that depend on a positive economic environment, significant pay increases are out of the question however much they want to help people weather the storm. The cost of increases above the Consumer Price Index will be met by reducing headcount and looking for greater productivity. As unemployment increases, so public spending has to reduce as tax receipts shrink. The vicious cycle of recession is closer than you think.

HR professionals have a pivotal role to play. Get this round wrong and far more than your own organisation is going to go through significant pain: get it right and you might save all of us from a serious economic crisis to add to all the others we face this year.

"Long excluded by governments Tory and Labour, the unions are now heading back to Downing St for beer and sandwiches"

Chris Bones is dean of Henley Business School

[email protected]

Copyright Haymarket Business Publications Ltd. Aug 2008

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