Pay awards stagnate ahead of national insurance hike
Pay growth at UK businesses is stagnating as businesses look to cut costs ahead of the Chancellor’s upcoming tax hikes.
Figures compiled by HR data and insights provider Brightmine show that pay growth slumped following Rachel Reeves’ Autumn Budget, and have since stagnated at three per cent.
The current figure now aligns with the Office for National Statistics’ release that CPI inflation had risen three per cent in the 12 months to January – ending a 15-month period where pay awards had outpaced inflation.
Sheila Atwood, HR insights and data lead at Brightmine, told City PM: “Weak economic activity means employers must carefully assess where their budget is allocated, and pay is often the first area under scrutiny.
“Longer term, employers will need to strike a balance between cost management and retaining top talent.”
She added that falling inflation had led to employees already anticipating lower pay awards, so the “impact of budgeting for national insurance increases isn’t as severe as it could have been.”
Employer’s national insurance contributions will rise 1.2 per cent to 15 per cent in April.
Reeves has faced backlash since the announcement, with Shadow Chancellor Mel Stride telling City PM in March that the increase was a “ticking timebomb that will lead to fewer jobs, lower wages and higher prices.”
Brightmine said that its research shows a majority of organisations have been “adjusting their pay strategies in response” to NIC changes.
According to the research, 54 per cent of firms said they were looking to reduce pay awards budgets and 27 per cent were looking to reduce hiring as cost-cutting measures.
A quarter of organisations also said they had implemented recruitment freezes or were restructuring teams to manage costs.
The National Living Wage for workers aged 21 and over will also rise 6.7 per cent to £12.21 per hour in April, which Brightmine said would affect nearly 60 per cent of organisations.
Atwood said: “The increases in National Insurance contributions and the national minimum wage are forcing businesses to make tough decisions on pay budgets.
“Many are prioritising financial stability over pay rises, and businesses must find ways to manage employee expectations when it comes to this year’s pay awards.”