Employees will next year be receiving a weekly cost-of-living allowance of about €1.16, the lowest awarded for many years and well below the €5.82 granted for this year, The Times has learnt.

The only time the COLA has gone so low over the past few years was in 2004 when it was set at €1.75.

Although the €1.16 figure, to be announced in the next Budget, is not final, social partners and economists do not expect it to change substantially. The allowance is worked out on the basis of the movement of the retail price index over the year and all that has yet to be factored in is the index for September.

The index measures the price changes of different products and services through a system of weighting. It has been more or less stable throughout the year, explained sources close to the committee tasked with monitoring prices. The committee is formed of representatives of the social partners and the National Statistics Office.

Despite increases in the price of energy, foodstuffs and gas, the cost of vegetables, fruit and clothes has generally fallen drastically, balancing out the effect of the items which had put an upward pressure on the index.

In the build-up to Budget 2010, the COLA issue had created deep disagreement between social partners, especially employers and trade unions. The former had warned that hundreds of jobs would be lost if the projected compensation of €5 to €7 was going to be awarded. On the other hand, unions argued that the allowance was sacrosanct, since workers were going to be compensated for the rise in the cost of living they had incurred the previous year.

The employers had asked the government to foot half the allowance but had eventually given in and agreed to pay the full amount after the government stood its ground, arguing that the mechanism could only be changed following unanimous agreement among the social partners.

Last April, Central Bank Governor Michael Bonello had called for a revision of the COLA mechanism, saying it was affecting the country's competitiveness.