Real pay dropping at fastest rate since records began

he growing squeeze on people’s pay packets was laid bare on Tuesday as official figures showed real wages are dropping faster than at any time since records began.

Although regular pay excluding bonuses grew by 4.3 per cent between March and May 2022, that is less than half the rate of inflation in May of 9.1 per cent. Growth in average total pay including bonuses was 6.2 per cent but still some way short of the current rate of inflation.

The Office for National Statistics said that in real terms and adjusted for inflation growth, total and regular pay both fell on the year – at 0.9 per cent for total pay and 2.8 per cent for regular pay, a record fall.

David Freeman, head of of labour market and household statistics at the ONS, said: “Following recent increases in inflation, pay is now clearly falling in real terms both including and excluding bonuses. Excluding bonuses, real pay is now dropping faster than at any time since records began in 2001.”

With the Bank of England forecasting that inflation could rise to 11 per cent in the autumn, workers face the prospect of their salaries being further eroded by spiralling prices in the coming months.

The figures came as the Government was preparing to announce later on Tuesday pay rises for public sector workers including nurses, doctors and dentists, police officers and senior civil servants.

Although ministers are understood to have accepted recommendations for rises of between four and five per cent, that will still be way below the rate of inflation.

Unions have already raised the prospect of strikes, adding to concerns over a summer of discontent with rail workers and barristers already carrying out industrial action and teachers and nurses threatening to follow suit.

The ONS said average total pay growth for the private sector was 7.2 per cent in March to May 2022 but for the public sector it was 1.5 per cent.

Responding to the latest figures, new Chancellor Nadhim Zahawi said: “I am acutely aware that rising prices are affecting how far people’s hard-earned income goes, so we are providing help for households through cash grants and tax cuts.”

In a speech to the City on Tuesday evening Mr Zahawi, who was appointed two weeks ago, will look to reassure the country that inflation can be tamed.

In a keynote address at Mansion House, Mr Zahawi will say that his priorities include “delivering sound public finances to avoid pushing up demand still further, providing help for households as they deal with the worst price rises in over a generation…and, where we can, easing the supply constraints that are the underlying cause of high inflation.

“The country should feel confident that we can, and we will, get inflation back under control.”

But Yael Selfin, Chief Economist at KPMG UK, said: “Robust growth in regular pay masks a weakening purchasing power of households as real earnings growth fell for the sixth consecutive month. With a more persistent inflationary outlook, consumers will likely remain under pressure for longer before they can afford a return to their previous spending patterns.”

Ben Harrison, Director of the Work Foundation at Lancaster University, added: “Workers across the UK are facing shrinking pay packets as inflation bites.

“The harsh reality is it will be acutely worse for the six million people in the UK who are in severely insecure work, and already face low pay and uncertain hours.

“Yet we haven’t heard anything from the Conservative leadership candidates that suggests they really recognise just how tough the squeeze is going to be for millions of workers.”

Overall Mr Freeman said that the figures showed a mixed picture for the labour market. The number of UK workers on payrolls rose by 31,000 between May and June to 29.6m.

“The number of people in employment remains below pre-pandemic levels and, while the number of people neither working nor looking for a job is now falling, it remains well up on where it was before Covid-19 struck.

“With demand for labour clearly still very high, unemployment fell again, employment rose and there was another record low for redundancies.”

Pat McFadden MP, Labour’s Shadow Chief Secretary to the Treasury, commenting on the latest ONS wage statistics which show a record fall in regular pay, said:

“Today’s record fall in real wages comes after a decade where wages have stagnated for workers across the economy.

“This is because the Conservatives have failed to grow the economy, which has left people more exposed to inflation and the cost of living crisis.”

Liberal Democrat Treasury Spokesperson Sarah Olney MP said the Government should reverse tax rises to help ease the pressure on household budgets. Ms Olney said: “People are seeing their paycheques eroded by soaring inflation month after month, yet they’ve been left with a zombie Government that’s missing in action.”