· 2 min read · News

Mixed picture on pay rises, research finds


As the Monetary Policy Committee announces whether interest rates will rise today, many employers are offering pay rises. But pay growth remains slow

Half of businesses (50%) are set to grant staff pay rises of more than 2% in the next year, according to a survey by the British Chambers of Commerce (BCC) and Indeed.

The survey of more than 1,000 businesses of a range of sizes and from a range of sectors revealed that 6% of firms will increase pay by more than 5%, 32% by 2% to 5%, 12% in line with consumer price inflation, and 18% by 1% to 2%.

Only 2% of firms said that they expect to decrease salaries because of increasing upfront business costs.

Meanwhile the Resolution Foundation’s latest quarterly Earnings Outlook has reported, however, that nominal pay growth is set to remain well below the pre-crisis average in the coming months.

It predicted it would remain around, or slightly below, the current level of 2.7% (compared to pre-crisis levels of 4.5%). This weak pay growth in part reflects that there is greater slack in the labour market than many economists previously expected, the Foundation stated.

The Earnings Outlook also highlighted a growing ‘disloyalty bonus’, with nominal pay growth for people who moved jobs in the last 12 months hitting 11% earlier this year – its highest level since the early-2000s.

However, the proportion of workers who have voluntarily switched employment recently is well down on pre-crisis levels, the report stated, with just 3% of workers having done so in the last 12 months, compared to an average of 4% pre-crisis.

Stephen Clarke, senior economic analyst at the Resolution Foundation, said this spelt bad news for most employees. “For the vast majority of workers who didn’t move jobs in the last year pay is still struggling along at just 2.5% – barely higher than inflation,” he said. “And despite this growing ‘disloyalty bonus’ young workers in particular seem reluctant to make the move.”

Regarding the National Living Wage increases scheduled for over the next three years, the BCC and Indeed report found that just over a third (37%) said that they will respond by raising prices of products and services.

Nearly a quarter (23%) said that they will take lower margins and profits, and 16% that they’ll increase investment in automation. The same number (16%) said they will recruit more workers on flexible arrangements such as self-employed contracts.

Jane Gratton, BCC head of business environment and skills policy, said that the government needs to help ease a growing cost burden on businesses in the next Budget.

“Growing and pervasive skills shortages are making it harder than ever for firms to fill job vacancies – so it is little surprise that they are pulling out all the stops to keep hold of the ones they have,” she said. “But the rising cumulative cost burden of employment, together with business rates and other charges, increases pressure on firms to raise prices and automate.

“To avoid future job losses the government must avoid any additional costs on business and help firms to boost productivity, for example by making it easier for them to use the apprenticeship levy to upskill their staff.”