Summertime blues: As trouble brews at BT and cuts loom for public sector workers, are strikes unavoidable?

LESS than three weeks ago, Ian Livingston was riding high on the telecommunications wave, having returned his company firmly to the black after a disastrous period that forced BT into posting only its second-ever annual loss in 2009.

BT's stock surged as a chipper Livingston briefed journalists on the strategy that led to the 1 billion in pre-tax profits reported by his company that morning. Amid the ebullient mood in his ninth-floor office at BT's City headquarters, Livingston went on to promise improving revenue trends and a return to growth for the company.

"A year ago, when we sat here – which was a less pleasant experience – we gave some targets which most of the analysts couldn't believe. We talked about 1bn of free cashflow, which we over-achieved," he said, referring to the 1.9bn of free cashflow that BT actually generated.

The bright future outlined by Livingston dimmed somewhat last week when news emerged of the extent of the financial rewards he will receive for leading this turnaround. Livingston's 3 million-plus pay package swiftly provoked the ire of the Communications Workers Union (CWU), whose 60,000 members at BT have been offered a sub-inflation pay rise of 2 per cent following last year's pay freeze.

Glasgow-born Livingston pocketed 2.1m for the year to the end of March, including his basic salary of 850,000 and a 1.2m bonus. He also received 1.2m in shares that he will be able to collect in three years' time if he remains with the company.

Unions leaders at last week's CWU national conference in Bournemouth quickly condemned the payout. Livingston and some of his fellow senior executives are also due to receive pay rises of 5-7 per cent in the coming year, prompting the CWU to announce that it will ballot members about a possible strike in response to what it describes as an unfair situation.

Andy Kerr, deputy general secretary of the CWU, said BT's 2 per cent pay offer to the general workforce is "nothing short of an insult to the very employees who have helped secure BT's remarkable turnaround". His organisation is pushing for a 5 per cent pay increase.

"Even now we hope that BT will re-think and agree to meet with us to resolve the current situation, but this must be against a backdrop of the company accepting that our members both require and deserve an improved pay award in real terms," Kerr said.

"In the absence of that, members in BT must prepare for the real possibility that this year they may be forced to take industrial action to secure a fair settlement in this year's pay round."

BT insists it remains open to further talks to avoid any strikes, but adds that its offer is both "fair" and "realistic".

Brendan Dick, director of BT in Scotland, says it is "disappointing" that in the current economic climate, the CWU does not feel that a 2 per cent pay rise is adequate.

As for the discrepancy between executive pay rises and that on offer to the general workforce, Dick says this is a function of supply and demand: "You pay what you need to in the market".

Others are more strident on this point. Ronnie Fox, principal of London-based Fox Lawyers, says comments from the CWU are "based only on the politics of envy, and show no real understanding of the ways in which the free market governs the remuneration of the most senior executives in very large businesses".

"There are very, very few people capable of doing what this chap at BT has done," Fox says. "Ian Livingston must make the tough decisions that affect the livelihoods of thousands of people, and he is doing a good job at BT. His remuneration reflects that, as he has hit the targets he has been set."

Fox believes that the current tough economic climate makes it easier for both the media and the wider public to criticise multi-million-pound pay packages. This, and the dire state of the public finances, will continue to feed labour market unrest for the next year or so.

"The politicians have also got a real interest in focusing attention away from their own misdemeanours," he says.

In historical terms, industrial unrest in the UK is at an all-time low. However, disputes such as BA's row with its cabin crew, or the prospect of postal strikes to fight the new coalition government's plans for privatising Royal Mail, are high in the public consciousness.

It is perhaps no coincidence that the highest-profile disputes in the UK in recent months – BT, BA and Royal Mail, plus a variety of industrial action on the railways – has centred around establishments that used to be state-owned services. Duncan Brown, a director at the Institute for Employment Studies, notes that these organisations have traditionally been strongly unionised, thus laying the groundwork for confrontation when times get tough.

This, however, doesn't fully explain the situation. For example, there is also a strong union presence in the car industry, yet workers such as those at Jaguar have been willing to accept pay cuts in order to save jobs.

Research from the institute shows that in the second and third quarters of last year, 40 per cent of pay agreements in the private sector were for either a freeze or a cut in salaries. That has since fallen back, although roughly one-quarter of all new deals are still putting pay hikes on hold.

"What we have seen from our research is that a sense of mutuality is very important," Brown says. "The smart executives recognise that. Stuart Rose was smart about it at M&S, when he said that if his store bonuses weren't paying out, then his executive bonus plan wouldn't pay out either."

However, this kind of approach is more difficult to execute in the public sector, which is where the most help will likely be needed in the coming months as the government begins slashing an initial 6.2 bn from its expenditure.

The UK's 156bn budget deficit is forcing the Conservative-Lib Dem coalition into a mode of brutal cost savings that are predicted to result in the loss of anywhere between 300,000 and 600,000 public sector jobs during the next three years. Unions representing these workers have signalled that they will resist moves to weaken their terms and conditions.

The potential extent of resulting unrest is difficult to gauge, but it seems likely there will be at least some repetition of the kind of walk-outs that have closed many of Glasgow's recreational facilities this bank holiday weekend, according to experts. Staff at Culture and Sport Glasgow – the arms'-length charity that runs arts, sport and leisure services on behalf of the city – will hold another strike tomorrow in an ongoing dispute over pay.

Brown says it is harder for managers in the public sector to persuade workers of the need for cuts, as these organisations are rarely if ever faced with the prospect of outright closure that can wipe out a bankrupt firm in private industry.

"It is much more difficult to argue the life or death situation in the public sector," he says. "The funding situation is often much more confused."

Ben Read, managing economist at the Centre for Economics and Business Research, emphasises that overall industrial unrest in the UK is currently showing a small increase from a low baseline. The rise, he says, is "simply a function of the current position we are in in the economic cycle".

Read says a number of the public sector unions seem to be "living in a complete fantasy land" where job losses will be relatively painless. This way of thinking has perhaps been encouraged by the fact that although the previous Labour government talked of the need for spending reductions, total public sector employment was continuing to rise as recently as last month.

"I can quite easily imagine some very significant industrial disputes arising as a result of the government's spending cuts," Read says. "But it all has to be done."

The result is going to be a "very sluggish" recovery in the UK, according to Read, who expects annual economic growth of no more than 1-2 per cent for the next couple of years. A revised government forecast due to be released with next month's emergency budget is expected to be significantly lower than the 3-3.5 per cent growth for 2011 laid out by former chancellor Alistair Darling in March.

Though all of this will continue to fuel general worker disquiet, Read says industrial relations in the UK will likely be less turbulent than in other parts of Europe and the rest of the world. This, however, does not mean it will all be plain sailing.

"People here are used to the fact that these kinds of things are going to have to happen, but it is still going to come as a shock when it does."