UK pay falling at record rate – should businesses raise wages?

According to the latest data from the Office for National Statistics (ONS), regular pay in the UK is falling at its fastest rate since 2001 when taking the rising cost of living into account.

Real regular pay (wages adjusted for prices once bonus payments have been stripped out) was 2.8% lower in the three months to May than in the same period of 2021. This was the sixth month in a row that there had been a decline and also the biggest drop since modern records began in 2001.

Pay including bonuses was also down by 0.9% when adjusted for inflation.

However, the rate of pay growth in recent months has varied across different sectors. For example, from March to May, the average total pay growth was 7.2% for the private sector compared to just 1.5% for the public sector. This is before accounting for inflation.

The finance and business services sector and construction sector also showed the largest growth rates at 8.2% and 8.1%, respectively, which was partly because of strong bonus payments.

Inflation is currently at a 40-year high of nine percent in the UK and is predicted to rise even further later in the year. The Bank of England is expecting inflation to peak above 11 percent after energy bills rise again in the autumn.

Should businesses raise wages?

With regular pay falling in real terms, there have been calls for businesses to raise wages to help combat the rising cost of living.

However, one firm that has raised its employees’ wages is the MRL Consulting group, an international tech recruitment firm. They have provided a 10 percent pay increase to all their employees, regardless of the length of service, role, or seniority.

David Stone, CEO, and Founder of MRL Consulting Group comments on the importance of caring for your staff.

He says: “Fresh fruit and a company jolly once a month just won’t cut it. The Great Resignation taught us how important it is to value your employees and give back to them. I need my people to focus on delivering world-class recruitment services, not worrying about the cost of fuel, food & utilities.

“We’ve been around for almost 25 years, and a number of our employees have been here since the beginning. I have always looked after my people and in return, they look after me, but it always starts with me. I believe we’ve survived this long because we always try and stay ahead of the curve, and support our clients and candidates as much as we do our own people.”

According to data from people analytics company Visier, 71% of Brits say they do not feel that their employer has adequately kept up with the cost of inflation.

But with businesses also feeling the wrath of rising inflation, especially SMEs, simply raising wages might not be viable for every business.

In a recent article, Business Leader spoke to Paul Christensen, the CEO at Previse and he feels that the government needs to do more to support businesses.

He comments: “With inflation now forecast to reach 10% before the end of the year, its impact will continue to be particularly hard felt by small and medium-sized firms, which lack the financial legroom to absorb the cost of soaring prices.

“If these businesses are to successfully battle inflation, Westminster must find new ways of tackling the real cash flow problems that they face – like slow payments and difficulty accessing finance.

“Slow and late payments, for example, continue to stifle SMEs of much-needed cash and have been a problem for years. Three-in-five UK businesses are currently owed money in late payments, while over 400,000 SMEs are on the brink of closure due to the late payment of invoices.”