UK workers suffer record drop in real terms pay

Pay  People walk on London Bridge, the day after a national rail strike, during six days of travel disruption, in London, Britain, June 22, 2022. REUTERS/Peter Cziborra
Pay including bonuses was down 0.9% when adjusted for inflation. Photo: Peter Cziborra/Reuters

Regular pay has seen the biggest plunge in more than 20 years when rising prices are taken into account, according to the Office for National Statistics.

Between March and May, pay excluding bonuses was down 2.8% from a year earlier when adjusted for inflation, marking its fastest rate since records began in 2001.

The figures show workers are feeling further pain as rising prices take a bite out of their spending power.

"Following recent increases in inflation, pay is now clearly falling in real terms both including and excluding bonuses," said David Freeman, head of labour market and household statistics for the ONS.

Average total pay growth was 6.2%, down from 6.8% in April, while regular pay growth excluding bonuses was 4.3%, up a touch from 4.2%. Adjusted for inflation, however, total pay fell by 0.9% and regular pay was down 2.8%.

Read more: UK households cut £106 a week during the pandemic with lowest earners hit hardest

Transport secretary Grant Shapps this morning said pay couldn’t rise with inflation as that would erode savings and other workers’ incomes.

"One thing we don't want to do is allow inflation to run out of control. When that happens you get into a vicious circle where it erodes people's incomes, it erodes people’s savings," he told LBC.

"This is a spike going through the system caused by Putin’s war in Ukraine and the big upset that's had to, for example, fuel supplies.

"It’s very important that we don’t chase that inflation, otherwise we’ll be permanently poorer, and that’s why the plan which gets us back on track as quickly as possible is important – and pay rises will need to reflect that."

But public sector workers, many of whom have been voting to strike over below-inflation pay offers, saw their total pay go up just 1.5% – compared with 7.2% in the private sector.

Laith Khalaf, head of investment analysis at AJ Bell, said: It seems the government is exercising pay restraint in the face of runaway inflation, but the private sector is not.

“That’s hardly surprising given the obvious pressures on recruitment that companies are facing. Job vacancies stand at almost 1.3 million, slightly greater than the number of unemployed people.

“That means if everyone seeking a job could be matched up with a vacancy, ignoring their location and skills, there would still be a shortfall.”

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

Inflation in the UK is at record high levels
Inflation in the UK is at record high levels

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.

“We’re working alongside the Bank of England to bear down on inflation, providing support worth £37bn this financial year for the cost of living, and investing in skills to help people get into work and progress.”

The data also showed that the unemployment rate was steady at 3.8% in the three months to May.

Nye Cominetti, senior economist at the Resolution Foundation, said: “People are feeling the effects of the cost-of-living crisis in their pay packets rather than their job security. Despite healthy wage growth in the private sector, near double digit inflation means that their real-terms value is falling at a record rate.

“But while everyone is experiencing pay packet pain, the jobs market at least remains resilient with unemployment close to a record low, inactivity falling and employment rising.

“There are also signs of some older workers returning to the workforce. The big question is whether this pattern will continue to hold in the though months ahead.”

Meanwhile, the number of people in work rose to the highest level since last summer, with another 296,000 people entering the jobs market. That was the largest increase since the three months to August 2021.

Read more: Inflation: Six in 10 UK firms to pass higher costs to customers

Ben Harrison, director of the Work Foundation at Lancaster University, said: “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.”

Watch: How does inflation affect interest rates?