Pay rises ‘plummet’ to lowest levels in a decade

Pay awards have come to a standstill after “plummeting” to their lowest levels since 2009 amid ongoing damage to the economy caused by the coronavirus, a study suggests.

Pay reviews over recent months have fallen to zero, according to pay analysts XpertHR.

Public sector pay rises were worth more than those in the private sector over the last year, with a median figure of 2.5 per cent, compared to 2.2 per cent in the private sector, the report said.

Those working in manufacturing and production firms and private sector services have seen “extensive” pay freezes.

XpertHR pay and benefits editor Sheila Attwood said: “The volume of pay freezes being recorded has not been seen in our data for 11 years, but the decline in the value of pay awards was inevitable.”

She added: "In April we saw many organisations defer a decision on their pay review until later in the year.

"This practice continues, with employers still unable to confirm that a pay rise can be given."

The fall in pay awards is “perhaps not surprising” given the impact of the Covid-19 outbreak on the economy, the report said.

The UK’s GDP is estimated to have fallen by 20.4 per cent in the second quarter of 2020, data from the Office for National Statistics (ONS) released on 12 August showed.

It was the second consecutive quarterly decline following a drop of 2.2 per cent in the first quarter of the year, putting the UK in its worst recession on record.

The ONS noted that throughout the 2008 recession, GDP shrank by no more than 2.1 per cent in a single quarter, further highlighting the record falls in services, production and construction output seen in the second quarter of 2020.

Despite this, “a fair number” of organisations are still making pay rises this year, Ms Attwood told The Independent. “We’re not saying that it’s completely ground to a halt.

However, she said, "a whole host of organisations have said we are just deferring [pay rises] for six months. That six months hasn't quite elapsed yet, but we're seeing a handful of organisations come back and say they're going to confirm a pay freeze. I suspect that a lot of those who deferred will come back with a pay freeze."

While pay rises have mostly been frozen, “not many organisations are cutting pay," Ms Attwood said. “They are just saying that their annual pay review is not going to happen this year.”

Looking ahead, Ms Atwood said she could "categorically say that organisations are not all going to announce a three per cent rise.

"The forecast is more of the same. Organisations are planning and looking ahead to next year. Some are looking at pay rises next year, it's just that the value of those will be severely subdued.

“I'm not sure whether they will all freeze pay; organisations that have frozen pay this year may think that they can offer a small amount.”

The ongoing effects will likely be similar to the previous recession, she added.

“It took us a little while post the last recession to get back to 2-2.5 per cent pay rises so it's going to be the same slow burn,” she said. "We're not going to go from 2.5 per cent this year down to a pay freeze and then jump back.

“There are going to be pay rises next year, but they're going to be low. In amongst those there are going to be many organisations that will freeze pay as well.”

The study was based on a sample of 103 basic pay awards between June and the end of August, covering almost 570,000 employees.