From the TUC

Five things we’ve learnt about pay today

26 Oct 2016, by in Labour market

Today – ASHE Wednesday in our office – saw the publication of the annual figures on pay across the UK (ASHE is the Annual Survey of Hours and Earnings). Here’s five things we’ve learnt:

  1. The National Living Wage is making a difference

The introduction of the National Living Wage in April this year raised the government minimum for 25 year olds and over from £6.70 to £7.20 an hour. That’s made a real difference to the lowest paid workers.

  • Pay at the fifth percentile grew by 6.2 per cent, compared with 2.2 per cent at the median and 2.5 per cent at the 95th
  • That means pay inequality has narrowed – although the figures are still stark. This year full time workers at the 90th percentile of pay earned 3.4 times those at the 10th Last year the ratio was 3.5.

The government has a chance to keep up the good work when it sets the rates of the National Living Wage for next year – we’re expecting an announcement around the time of the Autumn Statement. The TUC believes it’s vital that we keep on track for the target for the national minimum wage to hit 60 per cent of median pay by 2020.

  1. But we’ve also seen a worrying rise in the number of people paid less than the minimum wage

It’s clear the National Living Wage is driving up pay. But today’s official low pay estimates show a substantial increase in the number of people paid less than the official minimum. They have risen from 209,000 last year to 362,000 this year: a 73% increase. The new adult rate for those aged 25 and above (the “National Living Wage”) is already covering an increasing number of workers. Put this together with an increasing rate and the extra complexity of a new – and in our view unnecessary age threshold for workers aged under 25 – into the system and the result is inevitably that more employers will either get things wrong by accident or deliberately try to cheat.

Today’s figures are far from being a good measure of National Minimum Wage (NMW) underpayment. Because they include some occupations that are exempt from the NMW and those paid the lower “accommodation offset rate” whilst excluding the most common NMW scams because they do not show up in the PAYE data used for ASHE. These scams include bogus self-employment, internships and ”volunteering” as well as simply under-recording hours worked. However, the increase in the low pay statistics is in itself enough to cause real concern.

Clearly the NMW will only benefit workers if they can actually get it. The government has already taken steps in this direction by increasing the budget for enforcement and the penalties for employers who fail to pay. Today’s news shows that they must intensify this work. The next stage should be to commit further funding increases for enforcement in the autumn statement in November.

  1. Progress on the gender pay gap is still glacial

With women far more likely to be low paid than men, increased Minimum Wages make a real difference to their prospects, and women’s pay rose faster than men’s this year (3.6 per cent compared to 2.6 per cent for all employees).

But progress on closing the full time gender pay gap is glacial, with a fall of just 0.2 per cent this year, meaning that women working full time still earn 9.4 per cent less than their male counterparts. At this rate it will take more than 40 years to finally close the gap.

We know we need a labour market that works better for women. This means helping mums get back into well-paid jobs after they have kids, as well as encouraging dads to take on more caring responsibilities.

But the first step for government should be to make sure that straight discrimination is stamped out. The Autumn Statement is an opportunity to scrap employment tribunal fees, which stop women getting justice from bad employers who have discriminated against them.

  1. And real wages across the board still haven’t recovered from the financial crash

As TUC analysis has showed, pay in the UK has fallen further than in any other developed country except Greece.  Despite growth in pay last year, we still haven’t recovered, with our calculations showing real wages still £36 a week below their pre- crisis peak. While the figures for the latest two years have finally turned around, they have been flattered by unprecedentedly low inflation.

Median weekly real wage for the UK (2016 prices, using CPI)

Median weekly real wage for the UK

  1. Next year could see the return of the wage squeeze

Today’s figures show pay growing – but only because of exceptionally low inflation figures;  the September figure for the Consumer Price Index of 1 per cent was the highest since November 2014.

There’s two threats to people’s real pay next on the horizon:

While today’s figures relate to April this year, the more timely Average Weekly Earnings figures show a reduction in the nominal (before inflation) growth of earnings over this year relative to last year, of around a half percentage point.

And the decline in sterling following the Brexit vote is widely expected to feed through to CPI inflation.

The Treasury’s record of independent forecasts now shows a decline of real earnings into 2017, with the average forecast for earnings of 2.3 per cent outstripped by 2.5 per cent for inflation. That would see real wages falling by 0.2 per cent.

So while today’s figures do contain good news – particularly for the low paid – the fear is that another wage squeeze is on the horizon. That’s by no means inevitable: timely action by Government to get keep the economy moving with investment in vital infrastructure could help stave off another cost-of-living crisis. And the risk of higher inflation means its even more vital that the Government keeps the National Living Wage rising.

When Theresa May talks about an economy that works for everyone, most people will think first of the pay in their pocket. Next month’s Autumn Statement will be a key test of the Government’s determination to keep that rising.


One Response to Five things we’ve learnt about pay today

  1. UK real wages are still down 6%, in the East Midlands it's nearly 10%
    Oct 28th 2016, 10:13 am

    […] related to Brexit) threaten real earnings going forward (see my colleague Kate Bell’s piece from yesterday). Repairing this senseless and reckless damage to the economy and society will need much much […]