Britain’s unprecedented pay downturn likely to end first in Scotland
Real average pay in Britain is on course to return to pre-crisis levels by the end of 2024, but could take far longer in parts of the country, according to the Resolution Foundation’s Earnings Outlook published today (Tuesday).
With the latest ONS labour market data published later this morning set to show whether pay growth across Britain is gathering pace, the latest Outlook shows that the strength of the recovery – and the amount of ground to make up – depends on where you work, and what you do.
The Outlook shows that real hourly pay is – at £12.90 – around 3.5 per cent below its 2008 peak (£13.34). Were pay growth to follow the latest OBR projections and average just 0.9 per cent in the years ahead, it would take until the end of 2024 for earnings to return to their peak.
However, wages in many parts of the country are even further below peak, with the gap biggest in London (-6.8 per cent), the East Midlands (-5.6 per cent) and Northern Ireland (-4.7 per cent). The Foundation finds that were the OBR’s central pay projection to apply to current regional pay rates, earnings would not return to peak in London until 2030, and until 2028 in the East Midlands.
Previous Resolution Foundation research has found that London’s pay squeeze has been driven by lower starting salaries for people moving in and out of work.
Scotland, where pay is just 1 per cent below its previous peak, is closest to returning to pre-crisis pay levels. However, sluggish growth in recent years means that pay is still not set to return to peak until 2020.
The Foundation says however that while the scale of Britain’s pay downturn is unprecedented, there are at least signs that pay pressure is building. It notes that nominal weekly wages grew at an annual rate of 3.1 per cent in the three months to August – its fastest pace since the crisis.
And with pay prospects determined to an extent by the industry where people work, the Outlook shows that pressure to raise pay to fill vacancies could be particularly strong in the Information, Communications, and Finance sectors, where the ratio of unemployed people who previously worked in those sectors to vacancies is relatively low.
The Foundation adds that sectors with a low ratio of unemployed people to vacancies are already experiencing relatively strong pay growth – with nominal pay growing by 6.2 per cent in real estate, 5.7 per cent in accommodation and food services, and 4.5 per cent in finance.
Stephen Clarke, Senior Economic Analyst at the Resolution Foundation, said:
“Britain is just two-thirds of the way through an unprecedented pay downturn. The level of pay workers enjoyed before the crisis is not expected to return until the middle of the next decade. For Londoners the end could still be over a decade away. Scotland in contrast looks likely to return to peak pay first.
“But while the long-run picture on pay is pretty gloomy, there are now signs that Britain’s long overdue pay recovery is finally gaining momentum. Nominal pay growth has hit 3 per cent for the first time since the crisis, and could strengthen further in the coming months. Sectors like hospitality, finance, and real estate are already experiencing pay rises well above 4 per cent as the pool of available labour to draw upon continues to shrink.
“Ultimately though, our long-term pay prospects depend on higher productivity growth. Until that happens, we’re unlikely to see a strong and sustained wage recovery.”
Notes to Editors
- For more information contact Rob Holdsworth on 020 3372 2959 or 07921 236 972.