CCR Magazine

The VocaLink Take Home Pay Index for January reflects the current challenges facing the UK labour market as we enter 2010. The Index has reversed its gains from December to drop back down to 1.4 per cent in January.

The manufacturing index has been a significant contributor to the fall, plunging 0.9 percentage points at the start of year, while the services index has dropped from 1.7 per cent in December to 1.6 per cent, beginning 2010 at nearly one half of the value from the same month in 2009.

Despite the recent news that the UK economy stopped contracting last quarter after six consecutive quarters of negative growth, the bounce back for the fourth quarter of 2009 fell well short of industry expectations and has served to feed through into even weaker pay growth. Without any indications of a strong economic upturn on the horizon, spare capacity in the economy is preventing pay growth from escaping the range of 1.0 to 2.0 per cent where the VocaLink Take Home Pay Index has sat for the past eleven months.

With a question mark hanging over the speed of economic recovery, the impending General Election appears to be adding further uncertainty in the market which means employers are less likely to increase employment and compensation. As pay growth is squeezed, consumers are also feeling the pinch from the temporary VAT cut being reversed at the start of the year. In response, inflation rates are likely to jump from an already nine month high.

Marion King, Chief Executive Officer at VocaLink, said: “As we enter 2010, The VocaLink Take Home Pay Index reflects the trends of the past 12 months for low or falling wage growth. Although we are now technically out of the recession in the UK with the last official GDP estimate, pay growth rates are not going to return to those pre-recession levels for quite some time. Stagnating salaries combined with the restoration of the 17.5 per cent VAT rate are going to have a real impact on households’ spending power.”

Douglas McWilliams, chief executive of economics consultancy cebr, said: “The recovery – which is already slower both in magnitude and timing relative to expectations – is likely to be sluggish and fragile. The implication is that labour market conditions will remain weak for quite some time. Following the VAT cut reversal, we expect a period of rising inflation without a corresponding increase in pay growth which will further limit disposable income for the foreseeable future.”
 
VocaLink processes over 90% of UK salaries and the VocaLink Take Home Pay Index, established in 2004, provides the most timely and accurate disposable income data available in the UK. It is based on actual payments made to employees on a three-month moving average compared with the same Continuation measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.
 
(Source - VocaLink Take Home Pay Index)