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National Living Wage and inflation is impacting pay awards

Zoe Woolacott

The National Living Wage and rising inflation are having an impact on pay awards, with the median rising from 3.0% to 3.5% for the three months to April 2022, and the upper quartile rising by much more, according to the latest monitoring figures from Incomes Data Research (IDR).

An analysis of 70 pay deals effective between 1 February and 30 April 2022 reveals that over two-fifths of reviews across the economy have given employees increases of 4% or more with the largest cluster – 31% of all pay outcomes – occurring in the 5%-plus bracket. This is far more than in the same period last year, when only around one-in-twenty pay increases were at this level.

April is the most popular month for pay setting and the annual uplift in the National Living Wage is a key influence, especially for lower-paying employers. This rose by 6.6% on 1 April 2022 to £9.50 and is likely to be a significant factor in the clustering of awards at the 5%-plus level.

“Labour market pressures and the rising level of inflation since last summer have prompted employers to respond with relatively higher pay rises than last year”, commented Zoe Woolacott from IDR.

Meanwhile at the lower end of the distribution, our monitoring has found that fewer employers are implementing awards below 2% this year. Increases at this level account for just 3% of outcomes – down from 38% for that same period in 2021.

In private services, pay increases worth 4% or more are common in areas such as financial services and retail. A number of the high street banks have set their annual pay budgets at above 4% this year. And major retailers have increased their pay rates by even more. Meanwhile in manufacturing, more than two-fifths (42%) of pay outcomes were worth 4% or more – up from 28% in March – with examples across various industries such as agriculture, energy and water and general manufacturing.

The latest pay settlement figures are based on a sample of 70 awards effective between 1 February and 30 April 2022, mostly at large organisations and together covering over 800,000 employees. Very few awards in the sample are from the public sector and therefore the results predominantly reflect the picture in the private sector.

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