With the Christmas festivities over and the New Year celebrations done and dusted, for many it is back to work and a month or more of counting the cost of the holiday period.
In the depths of a global recession, employment has not been the comfort we would all hope for, with rises for many little more than a pipe dream in recent years, especially in real terms, once inflation has been taken into account. Rising fuel and food prices may be reversing at the moment, but for years it imposed an extra burden on households. At the Bankruptcy Service, we have helped many people considering bankruptcy, for whom debts have become unsustainable.
However, there is some light at the end of the tunnel, with official figures suggesting that real pay is starting to rise after six years of stagnation. Excluding bonuses, pay rose 1.6% when comparing August to October with the same period in 2013. This was slightly higher than the 1.5% predicted by the City.
For example, in October 2014, wages were up 1.8% on the same period in 2013, and with inflation at a rate of 1.3%, this meant a rise in real pay.
With plummeting oil prices (petrol prices in the UK are at their lowest in five years, with the price of crude oil halving in six months), this is a trend that is predicted to continue in the near-future, especially with inflation in November dropping to a 12-year low of 1%. Food prices fell by 1.7%, helped by supermarket price wars. The rate of Retail Prices Index (RPI) inflation, which is calculated differently, also fell to a five-year low of 2%, down from 2.3%.
Unfortunately, for much of the past six years, this has not been the case, with inflation outstripping pay growth, effectively meaning a reduction in real pay and much tightening of belts. The recent reversal of the trend is good news for the government, who need people to spend, piling up debt, to boost the economic recovery.
Unemployment too is falling, though the rate of the fall has eased off, falling by 63,000 compared with the previous three months, to 1.96m. It was the smallest drop in unemployment since the third quarter of 2013, a sign that the job market improvements are slowing down, after a period when unemployment fell much more than the government expected.
On a subject we know, bankruptcy, there has also been a dwonward trend in recent times. Those individuals taking the bankruptcy route between July and September 2014 was 4,886, down 18.7% on the same period the previous year. Bankruptcy is just one of a number of debt management options.
On the surface this all looks like a lot of good news, but the problem is that it is not pay growth led by employers, but by the economy. Surveys have shown a distinct lack of confidence (still) in the future from many employers, and real pay growth has only come about due to very low levels of inflation, rather than successful companies rewarding staff after a boost in business. Thus, with inflation already at a low level and thus unlikely to plunge much further unless if affected by fuel prices, wage growth will still be relatively weak in the coming year. All this ties in with interest rates, with the Bank of England likely to consider an interest rate rise should wage growth continue and the economy recover sufficiently.
For employers, there is little incentive to raise wages. With vacancies applied for in droves and relatively low employee turnover, the balance of power does not lie with the employee. Not everyone agrees though, and there is evidence that there may be progress in IT and engineering sectors regarding pay. Poor productivity figures for the UK though have provided another obstacle to raising wages.
For a small number of workers, there has been small progress elsewhere. In November, the UK “living wage” – the hourly wage needed to cover basic costs, in order to live to an acceptable standard – was raised by 20p to £7.85. This is separate to the legally enforced minimum wage, which stands at £6.50 an hour. Only a thousand employers have signed up the living wage initiative however, so it affects some 35,000 workers. The numbers involved continues to rise however, so in time it could be a relevant rate for many workers. It is thought that over a fifth of current workers in the UK earn under the living wage. It is not a legally enforceable level of pay, but the more employers that agree to it, the better.
With zero hour contracts and many of those unemployed forced to work for free as part of their reintroduction into the jobs market, I am somewhat sceptical about the constant drops in unemployment under the current government. However, there are definite signs that the economy is pulling out of a severe depression, and hopefully the next couple of years will provide greater chances of prosperity for many.