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Bankers’ pay outpacing inflation shows the cost of living crisis is ‘not equal’

Average pay dropped significantly in February as the real cost of living continued to accelerate, new figures showed

cost of living

Total earnings in the finance and business sector grew by 9.8 per cent between December and February. Image: Adrian Scottow/Flickr

The cost of living crisis is “not being experienced equally”, employment experts have warned after new pay figures showed real-terms earnings rising in finance jobs but falling elsewhere.

Real-terms basic pay saw the biggest single monthly fall for 8 years in February, according to the Office for National Statistics (ONS).

But wages are actually rising for some in well-paid jobs, the data showed, while people already on the lowest incomes saw both benefits and their pay fall well below the cost of essentials.

Private sector workers saw their pay rise by an average 6.2 per cent between December and February, the biggest growth since 2007, compared to a rise of 1.9 per cent for public sector employees. Pay for people in financial and business services went up by nearly 10 per cent, driven in part by big bonuses.

“This cost of living crisis is not being experienced equally,” said Stephen Evans, chief executive of the Learning and Work Institute.

“Bonuses in sectors such as finance mean some are seeing rising pay, while those on the lowest incomes saw their benefits rise by just 3.1 per cent yesterday, far lower than inflation.” 

“This is before the rise in national insurance and the energy price cap, so the pain is only going to grow without action.”

Inflation soared to 7.7 per cent in February, and economists are warning it could peak as high as 9 per cent later this year. Around 22 million households face paying an extra £700 on their annual energy bills from this month after Ofgem increased the energy price cap – a figure which could rise further in October, when the watchdog reviews the cap again – as well as a national insurance increase of 10 per cent.

The government must act swiftly to “support people who are being hit the hardest”, Evans added, and create new plans not just for jobs but for living standards too. The current real-terms fall in wages will continue until late 2023, according to the Resolution Foundation, at which point average pay will be as low as 2007 levels.

The government rejected calls to increase benefits in line with the accelerating cost of living, with payments rising by just 3.1 per cent this week – tied to last September’s inflation levels – meaning millions of low-income claimants are facing a real-terms cut to their social security payments seven months after ministers reduced universal credit by £1,040 per year.

Darren Morgan, director of economic statistics for the ONS, agreed that while strong bonuses continue to “mitigate the effects” of rising prices on income data, basic pay is now “falling noticeably in real terms”.

While benefit claimants in low-paid, insecure jobs are being hit hard by the cost of living crisis – well over a third of people on universal credit are in work – unemployed people saw the sharpest drop in the value of their benefits for 50 years this week, taking them to a 35-year low in value.

And the ONS data shows that as disadvantaged groups are squeezed out of the labour market – carers and long-term sick people in particular are “falling out of the labour market altogether”, Evans said – already-vulnerable people are at risk of being pulled deeper into poverty in the months ahead.

Pat McFadden, Labour’s Treasury spokesperson, said the government’s tax increases and benefit cuts were driving down living standards more than in any other major European economy. 

“At a time like this, Rishi Sunak could have chosen a one-off windfall tax on huge oil and gas company profits to cut household energy bills by up to £600, McFadden said. “Instead, he’s decided to make Britain the only major economy to land working people with higher taxes in the midst of a cost of living crisis.”

Around 600,000 more people in the UK could be plunged into hardship in the coming months, the Joseph Rowntree Foundation warned, a quarter of whom are children, as households across the country are under increasing pressure to cover unaffordable energy, fuel and food bills.

Ben Harrison, director of the work foundation, said the ONS data showed a “mixed picture” for the UK’s labour market recovery after the pandemic, with unemployment falling.

But “crucially, workers and job seekers are being hit by the largest fall in living standards on record as inflation outpaces wage growth,” he added.

“Many are struggling to make ends meet as regular pay growth is at 4 per cent – excluding bonuses – but inflation continues to rise.

“The chancellor’s Spring Statement failed to provide economic security to the most vulnerable in society, including those in low paying and insecure employment.” 

Sunak must “return to the despatch box and, at a minimum, raise universal credit” in line with the predicted cost of living to support those “at the sharp end of the cost of living emergency”, Harrison said.

Mims Davies, the government’s minister for employment, said: “We’re doing everything we can to help, with our Way to Work scheme which is supporting people coming through the doors of our Jobcentres to move into better-paid, higher-skilled work, as well as increasing the national living and minimum wage, all backed up by over £22bn of targeted investment.”

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