KAREN PEARSON is passionate about her job. She is a case worker for Herefordshire council’s home-improvement agency and has worked contentedly in local government for 12 years, but last week she voted for strike action in protest at a 2.45% pay offer from local-government employers.

“It has come to the crunch point now,” she said. “When you take into account the rising cost of groceries, fuel and utility bills, a pay rise of less than 2.5% would leave me worse off next year. We’ve had 10 years of below-inflation pay rises and now I’m having to look for a second job just to keep things ticking over.”

Pearson is one of thousands of employees who will be asked to accept pay rises that are below the rate of inflation. At his recent Mansion House speech, chancellor Alistair Darling warned employers to resist demands for high pay increases to prevent a wage-price spiral. He urged both public and private-sector bosses to be consistent with the 2% target for inflation, despite the fact that inflation is actually 3.3% and most economics experts say that the rate that really counts is inflation measured on the retail prices index, which has risen to 4.3%.

The chancellor’s message was echoed by Mervyn King, governor of the Bank of England, who said that average take-home pay would stagnate this year. But will British workers accept pay rises that in real terms feel more like pay cuts? The TUC’s general secretary, Brendan Barber, said public-sector staff would inevitably be the hardest hit. “The chancellor may say private-sector companies need to follow his lead but the public sector is the only area he has control of. People feel it is fundamentally unfair when one part of the economy is expected to pull back while much higher pay increases for richer people are still celebrated.”

So far there is little to suggest that private companies will obey the chancellor’s wishes. On the eve of his speech, Shell awarded striking haulage drivers a 14% pay increase.

For public-sector staff like Pearson, the battle to make ends meet gets harder every month. “My job means I have to drive around a lot and I’m now spending £200 a month on fuel with no extra allowance,” she said. “Over the past six months I have begun to feel more and more demoralised – I feel quite angry about it now and I think I’m worthy of a little bit more.”

The impact of below-inflation pay rises will be felt beyond the purse and wallet. “This situation opens up the whole notion of justice,” said Charles Johnson, an occupational psychologist with expertise in pay and rewards systems. “If you look at the outcry about chief executives who get pay rises even when a company has not done well, you can imagine what the feeling is like when people sense that whole sections of society are being treated more favourably than they are.”

Johnson has found that a sense of being treated unfairly in a climate where money is tight can affect people’s outlook on life. “In times of hardship, people can become very entrenched. Their survival instinct kicks in and they may feel they have to fight for their position.” This could make it hard for employers to get staff to accept lower pay rises in challenging times, he said.

“Even if people understand on an intellectual level that they need to accept a smaller pay rise for the good of the economy as a whole, that doesn’t mean they will be willing to go along with it. To persuade people to accept something difficult, you need to be able to show them that there is going to be something in it for them in the long run.”

It’s a problem employers must face as they negotiate with staff over pay. For local-government employers, like most organisations and businesses, there are constraints on how much they can spend on wages. Three-quarters of councils’ income is from central government, and the Local Government Association points out that last year councils got the worst settlement from the central pot in a decade. Employers’ costs are also rising with inflation and they argue that they can’t raise any more money from central government or from council tax.

“We can’t do anything to increase the amount of money we have, which means that, if pay goes up any higher, we’ll have to lose services or make job cuts to find the extra cash,” said Phil White, head of the negotiators for the local-government employers. “We have to balance the financial and economic situation in the country with the public-sector purse, and make sure we retain our staff and provide the services that people need.”

However, the unions argue that cutting costs by keeping wages down is flawed. Heather Wakefield, Unison’s national secretary for local government, said that for many workers the situation was becoming untenable.

“The figure of 3.3% for inflation is an irrelevance for most people. Food inflation is at 20%, gas and electricity prices are rising at 15% and we’ve all seen the huge hikes in the price of fuel,” she said. “We’re talking about the bare necessities of life that people can’t afford.”

Even those who are not on the breadline worry about facing the year ahead with less money.

Barbara Plant is a teaching assistant in Lewisham and lives with her husband, Don, and their three children. “I’ve been at the top of my pay scale for a number of years, so a pay award below the rate of inflation actually means my wages are going down,” she said.

“Our daughter is at university and it has been a struggle to support her. I’m a member of the GMB and we’ve accepted a pay offer below inflation but not because we’re happy with it. I would like to go on strike but I wouldn’t want to lose the pay if it lasted for more than a few days. All most people want is to feel valued and maintain a decent standard of living.”

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