UK pay has biggest drop in real terms in 20 years

UK pay has seen its biggest drop in real terms in 20 years, new official figures show, as inflation continues to rise.

Average pay excluding bonuses fell by 3% on the year after taking inflation into account, according to Office for National Statistics data released on Tuesday. This was the biggest fall since records began in 2001. The ONS data, which covers April-June this year, found that pay including bonuses fell by 2.5%. 

Britain is in the grip of a cost-of-living crisis, as high inflation pushes up all household costs and puts families under huge strain. Inflation, primarily being driven by rising energy prices, is currently at a 40-year high of 9.4% and is forecast to keep climbing this year.

Before taking inflation into account, the ONS data shows that pay excluding bonuses grew by the relatively high level of 4.7%. Pay including bonuses grew by 5.1%. But rising prices in effect wipe out these gains.

Somewhat perplexingly, while ever more families struggle to make ends meet, the UK is also grappling with a labour shortage. There were 1.27 million job vacancies in the UK in May-July, which was 32% higher than a year ago, according to separate ONS data released on Tuesday.

There are several reasons for the labour shortage, with different factors affecting different sectors. One big overall trend has been an exodus of workers over-50 – some of this group chose to retire early during or after the Covid pandemic, but others may have stopped working due to health issues, caring responsibilities, or the difficulty of finding a job, possibly as a result of ageism.

The ONS statistics show that early on in the pandemic increases in economic inactivity were largely driven by those aged 16 to 24 years. However, more recent increases were driven by those aged 50 to 64 years, with over 60% of the increase in economic inactivity during the pandemic being driven by this age group.  The ONS says the largest increase in economic inactivity during the latest three-month period was because of long-term sickness.

The government last month announced a package of support for jobseekers over 50, in the hopes of luring older people back into the workforce. Almost a third of retired workers would consider going back to work for financial reasons or social stimulation, according to a survey in June by Rest Less, a digital community for people over 50.

The latest job vacancy figures showed a slight decrease of 19,800 vacancies compared to the previous quarter, which could be because rising prices are now spurring some people to re-enter the workforce. But it is too early to say if this is sustained trend.

From healthcare to teaching to transport, workers have been calling for wage increases as inflation rises. Some employers in the private sector have paid out “cost-of-living bonuses” to help retain staff. The Trades Union Congress (TUC), a federation of unions, said the new wage data showed that the government must act now to boost pay.

“[Ministers] must do far more to get pay rising – starting with boosting the minimum wage this autumn and giving public sector workers a decent pay rise,” Frances O’Grady, TUC General Secretary, said in a statement.

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