British employers expect to raise pay by 5% over the coming year, representing the highest increase in at least a decade, a new survey has found.
Counter-offers are also increasingly being made to keep staff who are tempted by higher wages from rival firms, the study by the Chartered Institute of Personnel and Development (CIPD) found.
The CIPD said human resources executives expected to increase basic pay rates by a median of 5%. This is the same as the previous two quarters and the joint-highest readings since the survey started in 2012.
The figures continue to pile inflationary pressures on employers who are struggling to keep up with the current job market.
Expectations on the rise
Pay expectations in the public sector rose to 4%, the highest documented by the CIPD, from 3.3%.
The survey of 2,000 employers was conducted between 9th June and 5th July, just before Prime Minister Rishi Sunak offered teachers, doctors, and other public-sector workers a 6% pay increase.
Private-sector wage growth expectations of 5% found by the CIPD were in line with those in a recent Bank of England survey of businesses.
Increased National Minimum Wage and National Living Wage
These increases in pay expectations are on the back of over a 9% rise in National Minimum and National Living wages, which took effect from 1st April 2023.
Where the National Living Wage went up from £9.50 to £10.42 and the National Minimum Wage is as follows:
- Age 23 or over – £10.42 from £9.50
- Age 21 to 22 – £10.18 from £9.18
- Age 18 to 20 – £7.49 from £6.83
- For workers under 18 who are no longer of compulsory school age – £5.28 from £4.81
- Apprentices under 19, or over 19 and in the first year of the apprenticeship – £5.28 from £4.81
The 2023 rates came into effect across Scotland, Northern Ireland, Wales and England and all businesses regardless of size, have to pay the correct minimum wage.
Employers face a challenge
The Bank of England (BoE) stated on 3rd August that pay growth had failed to slow, creating a risk of persistent high inflation and higher interest rates.
Previously the governor of the BoE had said: “We cannot continue to have the current level of wage increases.
“We can’t have companies seeking to rebuild profit margins which means prices continue to go up at their current rates… the current levels are unsustainable”.
Growth in earnings excluding bonuses – which typically runs slightly higher than pay settlements – was 7.3% from three months to May, surpassing inflation for the first time in 18 months.
High inflation affecting businesses and consumers
At a time when UK interest rates and inflation are high, as the economy has been adversely impacted by the pandemic, resulting in a shortage of products and increased demand, leading to rising prices. The Ukrainian war has further increased gas and food prices, and Brexit has also affected the number of people available to work, impacting hiring costs as wages have increased to remain competitive.
Businesses are faced with the challenge of remaining competitive in wages and pricing their products and services, whilst maintaining profitability. Meanwhile, consumers are feeling the pinch from high interest rates and price rises, leading to a reduction in overall consumer spending, which, in turn, is further affecting businesses.
Pay increase only a short-term solution
The CIPD said businesses were also becoming more likely to match or exceed pay offers by rivals for their staff.
Two-fifths of firms said they had made a counter-offer to keep staff in the past year, and just over half of those firms said they were resorting to counter-offers more than previously, compared with 9% who said the opposite.
Where counter-offers were made, 38% matched the competing salary, with 40% going above it. Despite this, a third of employers believed counter-offers were ineffective at keeping their staff long-term.
The CIPD said:
“For some employers, counter-offers may only be valuable as a short-term option and … employees will move if wider aspects of the job, such as workload, autonomy and environment, don’t meet their expectations.”
In addition to competitive pay, training, personal development opportunities and strong career progression, plays a pivotal role in attracting and retaining staff. Investing in employee growth enhances engagement and loyalty, and works well as a longer term solution for talent retention.
The CIPD also found that 57% of employers said they have hard-to-fill vacancies, and of those, two in five said they would raise wages this year to attract workers.
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