UK workers worse off as bosses opt not to match inflation

03 August 2022 3 min. read

The British workforce is taking a real terms pay-cut, according to new research – as nine-in-ten bosses have refused to raise the salary of all employees in line with inflation. Fewer than half even managed to offer pay increases to 50% of their staff – leaving many workers hit hard by the cost-of-living crisis.

Around the world, record rates of inflation are seeing the average salary spread thinner and thinner. As a result, many companies report that they are being asked by employers to raise pay in line with inflation, as the cost-of-living crisis sees households struggle to make ends meet.

In June 2022, UK inflation hit a new 40-year high of 9.1%. Amid this, demand for ‘non-essentials’ is flatlining, and has positioned the economy on the brink of recession; with spending drastically reduced in UK households, ahead of a winter in which energy companies look set to ramp up prices further – even as they report record profits.

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According to new research from Ayming, however, UK employers largely seem unmoved by the plight of their employees. Ayming conducted a survey of 200 senior HR, learning and development leaders in the UK. Amid a tightening labour market, 90% of firms state they will increase spending on human resources management – 34% increasing that budget by more than 25% – as they look to improve talent recruitment and retention. But most do not seem to regard a rate of pay which could help keep staff’s heads above the water as a priority for those HR drives.

Respondents instead told Ayming that their HR priorities centred on company culture. Beyond recruitment, the lead item on the agenda for 43% of companies was ‘wellbeing’, while a further 41% added training was a top priority. In boom times, this might have made sense – but supporting staff and their mental health without addressing the historic rates of inflation that are mounting financial pressure on them is arguably ignoring the elephant in the room. Meanwhile, offering up training is sometimes a gateway to a higher-paid job further down the line, but again, it does nothing to remedy the material situation of workers in the here-and-now.

Scott Ward, Partner of People, Performance & Development at Ayming UK, commented, “Businesses face a fight for talent. The pairing of a buoyant job market and high inflation means employers are stuck between a rock and a hard place… In this market, the best talent will be receiving higher paying offers elsewhere as well as tempting work packages and will leave if they feel their needs are not being met. Above all, employers must weigh up the costs of salary increases against the cost of losing key people.”

Proportion of employees’ salaries to have increased at least in line with inflation in the last financial year

Ayming found that most businesses have not given employees pay rises in line with inflation – something it suggests will likely fuel the great resignation, as staff receive higher paying offers elsewhere. Only 8% of businesses have given all employees inflation-matching pay rises at present. That means more firms – 13% to be precise – favoured tactics like “allowing dogs into the office” to help attract and retain talent, than paying an inflation-proof wage.

Continuing from this, 51% of employers have given inflation-matching raises to less than half of their workers. The most common bracket saw 14% of businesses give just 1-9% of staff a raise equivalent to UK inflation. The impacts of the present crisis threaten to have longer lasting impacts, too. As the cost-of-living crisis means workers have to prioritise meeting needs now over meeting needs later, eight-in-ten workers are not saving at levels which are likely to deliver an acceptable standard of living in retirement.

It is a problem which is proportionally even worse among low-paid workers. The analysts found that of workers without any workplace pension savings, 75% were in the bottom weekly pay quintile. Meanwhile, their saving rate was well below average. As a result, fewer than 5% are able to save at a rate that will see them retire adequately.