17/09/2012 11:01 BST | Updated 17/11/2012 05:12 GMT

2012-13 Pay Negotiations in Higher Education: Why the Final Offer is 1%

Higher education employers and four of our trade unions are in dispute over pay and the unions are about to ballot for industrial action. As Chair of the employers' association, UCEA, I sincerely hope that even at this late stage, disruption to the education of our students and damage to the reputation of our sector can be avoided.

In March this year our trade unions submitted a 7% pay claim, alongside requests for action on a range of equality and pay-related issues, including that of a 'living wage' for lower-paid staff. The employers responded to all of those requests, noting that the pay claim was unaffordable - the additional annual cost to the sector would be in the region of £1 billion.

The employers' final 1% pay offer has been made during a period of unparalleled uncertainty in the sector. The changes to student finance in England, reductions in teaching and capital funding, concerns over undergraduate student recruitment today and international student recruitment tomorrow and frozen research budgets have meant that many institutions have looked to reduce their costs, including staffing costs and aim for larger surpluses in order to build their reserves. However, last year's healthy surpluses are not in any way 'spare money'. They are, to quote the Higher Education Funding Council for England (HEFCE), what the sector needs if it is to 'manage the financial challenges arising from the transition to the new funding arrangements'. But that was last year. For this year HEFCE is predicting that our surpluses will more than halve as public funding reduces.

The final 1% pay offer is made against the national backdrop of continuing pay restraint in the public sector, where all but the lowest paid have had their pay frozen for two years, with a further two years of pay restraint to come. This will see maximum increases of 1%, including both annual uplift and increments. In its most recent grant letter to HEFCE the Department for Business, Innovation and Skills (BIS) urged our sector to show restraint over pay. Crucially, we cannot afford to enter the upcoming Comprehensive Spending Review without evidence of such restraint.

I am not surprised that our trade unions and colleagues more widely are disappointed with the outcome of this year's pay negotiations. However, we all know family, friends and neighbours who have faced financial challenges during the recession. Much of the private sector reacted to significant reduction in demand by reducing hours and freezing pay in an attempt to minimise pay costs. While this approach saved jobs, it reduced significantly the standard of living of many in the UK. In parts of the public sector, staff have faced not only pay freezes but major job losses and changes to their terms and conditions.

Higher education employers are acutely aware of the effect that inflation and a fourth year of modest salary uplift will have on the real salaries of their staff - they continue to decline. More positively, real salaries are under pressure throughout the country and as a consequence higher education salaries continue to be competitive when compared to the external benchmarks monitored by employers and unions.

Academics had the third highest annual median earnings in 2011 of the 46 professional occupations covered by the Office for National Statistics and pay for professional services staff remains higher on average than in equivalent occupations outside the sector. Only a very small number of staff, usually in their first year of employment, fall below a 'Living Wage' figure of £7.20 per hour and the employers continue to operate annual service-based increments worth 3% of salary. This year 42% of staff will benefit and the increments will add an average of 1.4% to institutional pay costs in addition to the 1% under discussion here.

Understandably, one of the issues raised in these straitened times is that of fairness, particularly in relation to senior salaries. Despite annual lurid headlines, our governance systems work effectively and the ratio between Heads of Institutions salaries and all staff (or academic staff alone for that matter) salaries has remained unchanged for more than a decade.

Negotiations over the 2012-13 pay award have ended with four of our five trade unions (EIS, UCU, UNISON and Unite) in dispute over the employers' final offer. Following two dispute resolution meetings and talks at the conciliation service Acas, we have not found a resolution. Our unions are to ballot their members for industrial action this month. Trade union members will, of course, consider the arguments set out by their representatives but I hope they will also consider the wider situation facing their institution, their sector and their students as they decide on the most appropriate course of action.