Report on pay outlook published as wages squeeze continues to bite
Britain’s getting a pay cut
There is a real and present danger that inflation will continue to increase faster than earnings this year. The latest figures show average weekly earnings growing at a modest 2.1%, whilst CPI inflation has increased to 2.9% and RPI to 3.7%. In short, Britain is getting a further pay cut.
The TUC has calculated that the average UK employee now earns about £1,000 less than they did in 2008, in real terms. Long-running pay constraints have been bad for the economy, leading to greater personal indebtedness and lower consumer demand. Put simply, businesses need customers with money in their pockets but sluggish wages are squeezing spending power.
It is against this grim background that the TUC published The outlook on pay for 2017: a report for the TUC . The new report examines the state of pay, along with prospects for 2017. It was written by pay experts Incomes Data Research.
What’s been going wrong – private sector norms and public sector caps.
The IDR report highlights that far too many employers still plan to give the same pay rise as they did last year, clustering around 2.0 per cent. Few seem to have factored in rising inflation, even though it was widely predicted and 64% of the employers surveyed by IDR said that inflation was an important factor in pay reviews. The net result is that the average pay increase has lagged behind RPI in 8 of the last 10 years. The report also notes that most negotiators still consider RPI as the main inflation measure when it comes to pay bargaining.
Behind the median figure, there were fewer pay freezes in 2016, but 6% of employers still offered no increases at all. Turning to the above-average awards, 14% were between 3.0% and 3.99%, while just 9% of awards resulted in an increases of 4.0% or above.
This trend continued in early 2017. Taking the first 45 pay awards of the year, which covered just over 138,000, the median increase was stuck at 2.0% and the middle 50% of awards were tightly grouped between 2.0% and 2.5%. Only 14% of 2017 pay deals were for increases of 3.0% or above.
The impact is particularly extreme in the public sector, which has been facing pay freezes and caps for nearly a decade, but pay parsimony also bites hard across many parts of the private sector.
The report highlights how growing recruitment pressures in some parts of the public sector may have led the 2015-2017 government to tweak their policy on pay. The government has already signalled its intention to allow awards above the 1.0% cap for a very limited number of hard-to-recruit groups. Thus, for example, the latest increase for marine surveyors in the civil service was 2.0%.
However, this is just fiddling around with the margins. The big question for public sector workers is how we can break away from the long-running pay cap. We must hope that the hung parliament and apparent public distaste for austerity will mean that we can move away from more of the same, as the effect on public services is simply toxic.
Gains for low paid workers, but don’t forget the squeezed middle.
We have made some gains for low paid workers, largely by convincing the government to increase the National Minimum Wage (for over 25s, at least). This delivered a pay increase for 1.5 million people in April this year. Our target goes beyond the government’s current aspiration to make the rate 60% of median earnings, and we have a £10 an hour rate firmly in our sights.
While we have moved the national debate some way towards fairer pay increases for those at the bottom, average real pay is still falling. Increasing the minimum wage is welcome, but it cannot be the only measure, especially for the vast majority of workers who make up the “squeezed middle”.
The minimum wage increases may exert some upward pressure on higher rates, as employers seek to avoid over-squeezing pay differentials.
Brexit will, of course, also have an effect on pay. The big question is how the relative strengths of the downward pressure of the economy and the tightening labour market will balance out. IDR discussed some of the risks, insuring the threat to the export market and the potential cost to the public finances. Ironically, the report also notes that there will certainly be a higher demand for trade lawyers and negotiators in the near future. Many outcomes are still unclear though. For example, if less migrant labour is available, does that mean that wages will rise, or will pressure be undercut by weaker demand?
How do we get both better businesses and better pay?
Squeezing pay is obviously bad for working people and the families. Long-running pay constraint has also been bad for the economy, leading to greater personal indebtedness. Rising real pay is likely to be a necessary condition for economic growth, otherwise lack of consumer demand deters investment, low pay stunts productivity, and a vicious circle is formed.
A buoyant economy needs higher disposable incomes. This would be easier to achieve if we had a broader industrial strategy that focused on improving both pay and productivity, as a key to broader business success.
Mathew Taylor’s review of modern employment practices is likely to report in the next couple of weeks. The TUC has called for the creation of new sectoral bodies to bring together unions and business to negotiate pay, progression, training and conditions. These should be piloted in the low-paid sectors where the need to improve conditions is greatest
It is more important than ever that working people do not get left further behind. Our goal must be to ensure that real pay growth strengthens during the coming year. Britain still needs a pay rise and it must get one soon.