Will you get a pay rise this year?
Private sector pay is rising but not fast enough, according to new research.
Private sector pay will increase this year, but will still lag behind inflation, according to research by Income Data Services.
This means salaries are trailing further and further behind the increasing cost of living.
On average, private sector pay rose by 2.2% for the three months to November 2010, which is less than half of the retail price index (RPI) measure of inflation.
The RPI index, which measures the average monthly change in the prices of goods purchased by most UK households, is currently running at 4.7%, according to figures from the Office for National Statistics (ONS).
There is some good news though – the number of pay freezes in the private sector continues to fall, with just 6% recorded in the three months to November, the lowest level since the end of 2008.
Read our article: are you due a pay rise?
Despite private sector salaries rising again after the recession, they have lagged behind the rate of inflation. In addition, experts believe RPI inflation to stay above 4% for the majority of 2011.
Public sector pay has fared worse, however. On average, pay rose by just 0.75% for the whole of 2010, compared to 2% for their private sector counterparts.
Ken Mulkearn, Editor of IDS Pay Report, says: "Private sector pay settlements could well rise in 2011, under the influence of higher inflation and the tentative economic recovery. But the increase in the cost of living, especially after rail fare rises, and the increase in VAT to 20%, means that most employees' pay will be chasing inflation."
"Meanwhile in the public sector, the government's pay freeze policy means that staff salaries there will fall even further in real terms," he adds.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).