Pay crunch coming as productivity struggles, says CIPD

Rising inflation and stagnant productivity is likely to lead to a tough squeeze on pay, the CIPD have said in response to the Budget

Commenting on the 2017 Budget, Acting Chief Economist of the CIPD, the professional body for HR and people development, Ian Brinkley said:

On pay and incomes:

“While the headline GDP and jobs figures were reassuringly robust, the fact remains that pay is likely to be strongly squeezed over the next few years. With rising inflation likely to bite, real pay is projected to grow by just 0.2% in 2017 and 0.4% in 2018.

“It is particularly concerning that real household disposable income, the measure which best indicates how much money people have in their pockets, flat lines at 0% growth in 2017. What follows is a relatively weak return to growth through to 2021, and there is a clear risk that any financial hit, either as a result of Brexit or otherwise, could have a very damaging effect on fragile household budgets.”

On productivity:

“The Government’s productivity plan appears to be having no measureable impact on the economy’s future productivity performance, according to the OBR forecasts. The OBR assumption about future productivity growth between now and 2021 is little different to that published in November 2016 and worse than that published a year ago, in March 2016.

“If the economy is to survive the choppy waters presented by Brexit, then it is crucial that the Government does more to address the productivity problem with a greater focus on investment in skills and business support for SMEs, for example, as it is apparent that their current plan is not working.

“Above all we need a convincing skills strategy that addresses the skill shortfalls across the workforce as a whole. The Chancellor’s announcements regarding investment in skills and lifelong learning is a step in the right direction but it’s vital that workplace skills continue to be front of mind for the Government. We’ve hit record employment, now the Chancellor’s challenge is to make sure that work is more effective, and our economy more productive.”

On National Insurance Contributions:

“The changes to national insurance highlight the challenges associated with having a population that is working in increasingly diverse ways. With more people likely to become self-employed or involved in other forms of atypical employment in the future, the tax issues highlighted by the Chancellor will only become more problematic.

“The Taylor Review into the gig economy provides a crucial opportunity to re-set the framework within which the labour market will operate in the future, and we look forward to working with Matthew Taylor's team to ensure that workers are given more clarity about their working rights.”

On skills:

CIPD Skills Adviser Lizzie Crowley, said:

“It’s great to see recognition that tackling the UK's skills challenges is a top priority. With a significant slowdown in workers coming from the EU, upskilling the UK’s existing workforce and the next generation is more vital than ever.

“Technical education has been a longstanding weakness in the UK skills system. Additional investment to help to equip the next generation of workers with technical skills is therefore very welcome as we head towards post-Brexit Britain.

“However, the majority of the workforce of 2030 is already in work, and whilst the £40m investment in lifelong learning is welcome, we question the balance of government spending priorities given the focus needed on helping people already in work.

"We look forward to hearing more about how the Government is going to improve lifelong learning, to ensure employees are able to perform to their full potential at work, keep their skills up-to-date and feel challenged and motivated in their role.”

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