UK salaries to rise 5% amid tight labour market

Private sector salaries are expected to increase in 2023 but continue to trail high inflation, CIPD says

Commuters head to work in London. Employers are expected to raise salaries by 5 per cent this year as they struggle to fill vacancies. Bloomberg

More than half of employers in the UK expect to raise salaries by a record 5 per cent this year amid a tight labour market that has left companies struggling to fill vacancies after a wave of early retirements during the pandemic, the Chartered Institute of Personnel and Development (CIPD) says.

However, government employees are expected to receive a median wage rise of only 2 per cent this year, giving context to continuing discontent and strikes among key public sector workers, said the CIPD, a professional body that represents employers, in its quarterly Labour Market Outlook survey on Monday.

About 1,800 London bus drivers on Monday accepted an 18 per cent pay increase after a long-running dispute that involved more than 20 days of strike action, their trade union Unite said.

The 5 per cent increase in the private sector is the highest raise since 2012, when the CIPD started the survey, but continues to trail behind record high inflation of 10.5 per cent.

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“Skills and labour remain scarce in the face of a labour market which continues to be surprisingly buoyant given the economic backdrop of rising inflation and the associated cost-of-living crisis,” said Jon Boys, senior labour market economist for the CIPD.

The International Monetary Fund last month said Britain would be the only major economy to contract this year.

The Washington-based lender cut its 2023 economic growth forecast for the UK, as high inflation, the cost-of-living crisis, public sector strikes over pay and fears of recession continue to weigh on the economy.

In December, a House of Lords Economic Affairs Committee report said a surge in early retirement during the pandemic was the “biggest cause” of the country’s labour shortage.

“We are unable to say exactly why, but a lot of people over 50 who left work or were furloughed during the pandemic did not come back,” George Bridges, chairman of the committee, said at the time.

The CIPD survey, which polled more than 2,000 employers, found that 71 per cent expected to hire in the next three months, while redundancies would remain below pre-pandemic levels.

However, 57 per cent said they have hard-to-fill vacancies and many expect this problem to persist for at least six months, with 29 per cent saying it will be a significant issue for their business.

Of the organisations that plan to increase salaries in response to hard-to-fill vacancies, 57 per cent say they will achieve this by raising prices rather than lowering profits and absorbing costs.

“The opposite was true 12 months ago, suggesting that the tight labour market will increasingly feed through into price rises for organisations’ goods and services,” the CIPD said.

Meanwhile, 47 per cent of respondents said they had upskilled existing staff to fill roles, 43 per cent raised wages, 27 per cent improved the quality of the job and 26 per cent hired more apprentices, the survey found.

However, increasing the duties of existing staff is more prevalent in striking sectors such as education (43 per cent) and health care (40 per cent).

Skill-shortage vacancies outnumber labour shortages and those with degree-level or equivalent qualifications are highest in demand, the survey found.

“It’s positive to see many employers taking steps to tackle skills shortages by upskilling existing staff and hiring apprentices,” Mr Boys said.

“However, the UK government could provide much-needed support by making the Apprenticeship Levy more flexible, to boost employer investment in training and reverse the decline in apprenticeship starts we’ve seen in recent years.

“Many employers are recognising the potential to attract certain groups to fill vacancies — particularly older workers, carers and those with health conditions — but this also requires a focus on improving job quality, particularly flexibility.”

In December, the UK government announced new legislation giving employees the right to request flexible working from the first day of employment to have a greater say over how they work.

Under previous legislation, workers had to wait 26 weeks before requesting flexible arrangements.

“The forthcoming introduction of day-one, right-to-request, flexible working should prompt more employers to ensure that they advertise jobs as flexible and provide a range of flexible working practices to attract and retain a more diverse workforce,” Mr Boys said.

“However, more needs to be done to help provide employers, particularly SMEs, with access to occupational health services or support, to help them to keep our ageing workforce healthy and in work.”