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Will inflation cancel out the deal?

Ministers and employers have argued that an inflation-only multi-year pay deal is essential to give schools stability and avoid another funding crisis, but could it actually mean a pay cut? The School Teachers' Review Body acknowledged that recommendations put teachers' pay into uncharted territory.

It is aware of no other multi-year scheme that had been set on the basis of forecasted levels of inflation alone. The difficulty with a pay deal stretching until the end of August 2006 comes in getting those forecasts right, when economic predictions are a notoriously inexact science.

The Department for Education and Skills said that the Bank of England's target for underlying inflation between 2004-6 was an average of 2.5 per cent and that forecasts based on data for May said it would be met.

Teacher unions have said that inflation is currently 2.8 per cent and that a 2.5 per cent deal in 2004 could mean a pay cut.

Based on an average of 10 independent forecasts, the review body found that inflation, including mortgage interest rates, was predicted to be 2.6 per cent in 2004, 2.9 in 2005 and 2.6 per cent in 2006. But there was considerable variation between the forecasts with the lowest for 2005 at 2 per cent and the highest at 2.8 per cent.

Its solution has been to open up the possibility of a review of teachers'

pay if the average rate of inflation exceeds 3.25 per cent or falls below 1.75 per cent during the whole of the 20045 or 20056 financial years.

The National Union of Teachers said this would never happen because the trigger for a review is almost 1 per cent higher than the pay award and the Government is proposing to narrow its definition of inflation.

Charles Clarke, Education Secretary, has said any such proposal should also be considered against affordability, and education funding is extremely tight.

He would undoubtedly point to figures included in the review body's report showing that average pay rises since 1999 for individual teachers have soared above inflation and that average teacher pay has remained consistently above that for non-manual workers since 1996.

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