National living wage to rise 9.5% as real wages continue to fall

The government is expected to accept a recommendation that the national living wage should increase by 9.5%, as wage growth continues to lag behind the cost of living.

As they prepare for Thursday’s fiscal statement, chancellor Jeremy Hunt and prime minister Rishi Sunak, according to an article in The Times, are expected to follow the Low Pay Commission’s reported recommendation that the national minimum wage for those aged 23 and over should rise from £9.50 to £10.40. The increase would take effect in April 2023.

It comes as the Office for National Statistics published its monthly labour market statistics, which showed that growth in average total pay, including bonuses, was 6.0% in the year to the last quarter (July to September 2022).

However total pay, adjusted for inflation, fell 2.6% on the year, one of the largest wage decreases since comparable records began in 2001.

The newspaper also expects thresholds for income tax and national insurance to be frozen and a reduction in the threshold for the highest 45p rate of income tax from £150k to £125k. This highest rate of tax was due to be abolished under Liz Truss and Kwasi Kwarteng.

Sunak said yesterday that “fairness and compassion” would be at the heart of the autumn statement.

Hunt said that “people’s hard-earned money isn’t going as far as it should”, adding “Putin’s illegal war has driven up inflation – a hidden and insidious tax that is eating into pay cheques and savings.”

“Tackling inflation is my absolute priority and that guides the difficult decisions on tax and spending we will make on Thursday. Restoring stability and getting debt falling is our only option to reduce inflation and limit interest rate rises,” said the chancellor.

Average regular pay growth for the private sector was 6.6% in the last quarter, and 2.2% for the public sector, according to the ONS. Other than at the height of the pandemic, this is the largest pay growth seen for the private sector and the biggest difference between the private sector and public sector.

Helen Gray, chief economist at Learning and Work Institute, said: “Whilst there are some signs that the falls in real wages is starting to slow compared with the record reductions seen earlier in the year, they are still failing to keep pace with the cost of living.

“With inflation remaining high, this seems unlikely to change any time soon. Pay for public sector workers is continuing to fall behind that of the private sector, with the gap increasing at the fastest rate since the peak of the pandemic.”

Louise Murphy, economist at the Resolution Foundation, said: “Pay growth continues to strengthen in the private sector. This has driven a huge wedge between private and public sector pay, which has been subject to very tight settlements. This wedge is unsustainable in the long run as it creates huge difficulties for recruiting and retaining public sector staff.

“With public services already stretched and job vacancies already at record highs, it will be hard for the chancellor to deliver a further period of sustained public sector pay restraint.”

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The ONS today also reported that the UK unemployment rate rose slightly to 3.6% in the three months to September, up from 3.5% in August but remaining at its lowest levels for nearly 50 years.

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