Falling inflation may reduce pay pressure
46 per cent of respondent employers highlighted how they expect revenues to increase in 2024, supported by falling inflation. While inflation has fallen from 11.1 per cent, the highest level since October 1981, the latest figure is 4.6 per cent. A similar rate is expected on 20 December 2023, meeting the government’s aim to reduce inflation to below five per cent by the end of the year.
In spring 2023, the Office for Budget Responsibility (OBR) forecast that inflation would fall sharply in 2024 to 0.9 per cent. The Bank of England said that inflation would be back to the two per cent target at the end of 2024. However, in the wake of the autumn statement, the OBR was more conservative about the fall in inflation, now predicting it will be 2.8 per cent by the end of 2024. The Bank of England also adjusted its prediction to 3.4 per cent in 2024.
Employers’ fears associated with offering greater pay increases this year, in terms of setting a precedent and increasing the pay bill without necessarily increasing productivity, may be contributing to the sustained costs facing both employers and employees. In the context of wider debt levels, the picture on inflation is more complex than ever, with employers keeping a keen eye on the continued impact of interest rates on pay awards for 2024.
In April 2024, there will be an increase in the National Minimum Wage in April 2024. The Living Wage Foundation is also encouraging employers to keep up increases to support employees. This particularly affects those sectors with roles that are on or around the minimum wage pay level, such as Residential Care, Healthcare and Facilities Management.
Some commentators have said that raising minimum levels is already happening in a competitive labour market, so employers should be able to absorb the minimum 58p increase. The government is pledging their commitment to “ending low pay”, in order to uphold living standards and balance employer affordability with employee need. Living Wage Foundation director Katherine Chapman said that the National Minimum Wage may fall short of the Living Wage recommended rate for 2024, which is “the only rate that is independently calculated based on the cost of living.”
Employers are increasingly looking at their pay strategy to ensure that pay is meaningful. Job evaluations are a key priority in 2024, to ensure that there is an objective pay structure in place which reflects the scope of the role and the level of remuneration. Meanwhile, pay compression is a real concern when minimum wage is driven up, as there is a risk that pay levels between certain employee groups are not differentiated enough to reflect greater responsibility between pay scales.
Increases in the Living Wage
The European Council adopted new rules on pay transparency on 24 April 2023, under the EU Pay Transparency Directive 2023. The EU Directive aims to combat pay discrimination, to help close the pay gap in the EU.
While the directive will not automatically apply in the UK, businesses who have operations in EU member states will need to meet reporting requirements in respect of those operations, but may adopt a ‘one business approach’ across their international business. EU companies will be required to share information on salaries and take action if the gender pay gap exceeds five per cent.
Therefore, UK employers who face a global war for talent may face pressure to adopt greater transparency to remain competitive, attract the best talent and clients and satisfy calls for salaries to be paid fairly. Customers and investors are increasingly interested in a company’s record on diversity and inclusion, with many going beyond the mandatory pay gap reporting in the UK to consider their workplace representation of ethnicity, age and disabilities.