Friday, August 31, 2007

When is 2.5% not 2.5%

I find it completely maddening when Frown and co go on about the 2.5% settlement for parts of the public sector.
Firstly it is woefully below RPI (ie how prices have really changed, rather than the CPI "official" measure that the BoE uses to measure itself against).
Secondly it isn't 2.5%! OK if you take the two numbers 1.5 and 1, and add them you do get 2.5. But when you do the calculation of how much 100 has increased by after 12 months if you first apply a 1.5% increase, and then a 1% increase after 6 months, the answer you get is not 102.5, but actually 101.83. So its not a 2.5% increase is it?
What is even more annoying is that when this is reported in the media, it is normally only stated as a "claim" by the relevant trade union that it is in fact not 2.5% but something lower. Its not a claim, its a statement of fact. The lie is ever calling it 2.5%
Brown's claim that putting an extra £4.2m[1] into the economy will threaten the inflation rate uncontrollably is probably overstating it slightly.
[1] Assuming 28,000 staff with an average salary of £25k, this is the difference between a 2.5% increase and a 1.9% increase.


At 11:03 am, Blogger Unknown said...

it was similar for teachers. We were given 2.5% over 18 months and the press swallow the government line that teacher got a 2.5% increase.

At 12:09 pm, Anonymous Anonymous said...

I don’t understand your maths.

£100 + 1.5% = £101.50
£101.50 + 1% = £102.51½

How did you come up with your figures?

I suspect what the union is complaining about is really that for the first 6 months they get a lower salary than if they got the whole increase up front.

At 12:20 pm, Blogger Radders said...

After 6 months of a 1.5% raise on 100 you will have earnt 609, against what you would have earnt (ie 600). Then your get the raise of 1% on your salary of 101 => 102.515. In the final 6 months you earn 615.09.
So in 12 months you have now earnt 1224.09 against 1200. This equates to an increase of only 2.0%, not 2.5%.
Now some of these increases are being staged after 8 or 9 months, which means the real %age increase is even lower.


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