As the wages of many workers in Belgium are linked to inflation, a system called wage indexation meant that when inflation soared to 12%, one million workers had their pay boosted by an average pay rise of 11.59% earlier in 2023, according to SD Worx.
A similar 4.9% rise is predicted in 2024 according to Willis Towers Watson’s Salary Budget Planning Report.
Although wage indexation is a factor that UK public sector bodies must take into account during pay reviews, the UK has recently experienced significant strike action centred on dissatisfaction with pay.
Around 4 million working days were lost to strikes in the 12 months to May 2023, according to Resolution Foundation data, with ONS figures showing that for the three-month period from February to April 2023 real-term regular pay fell by 1.3%
Duncan Brown, independent government advisor and principal associate at the Institute for Employment Studies, said that usual interventions around pay such as cost of living bonuses, emergency payments and financial wellbeing do not go far enough.
Speaking to HR magazine he said: “An element of pay indexation would make the pay review process fairer and less contentious and should be considered by more [UK] employers.”
Brown admitted that pay indexation might be unpopular with UK firms despite numerous employees needing additional employee support as well as many now accessing food banks.
He said: “Most British employers would still throw up their hands in horror at the suggestion of automatic indexation but the evidence seems clear that price gouging and profiteering have been bigger contributors to inflation than pay awards.
“In addition, objective non-discretionary pay award formulas are much better for closing gender pay gaps than discretionary pay adjustment methods in the private sector.”
Alan Price, CEO at BrightHR, added that while it was unlikely that wage indexation would be implemented in the UK it could deliver benefits, such as giving employees more security.
He said: “Employees might be less worried about the cost of living crisis knowing that their pay will be increased to account for inflation, so they are more focused at work.
“However, if an organisation is forced to provide a pay rise to employees based upon inflation, this could result in financial problems for the business.
“Cuts may have to be made in other areas, such as the benefits that they provide to their staff, or it possibly could result in some companies going out of business completely.”