CIPD Voice: Issue 13

In its most recent inflation report, the Bank of England predicted that the past tightening in the labour market is likely to lead to greater upward pressure on wage growth; which it has consistently argued is one of the key factors that would determine whether to raise interest rates or not. The Monetary Policy Committee raised interest rates for the first time in 10 years in the same report, which is curious since the gradual tightening of the labour market has not led to rising wages over the last two years.

What’s more, the latest Labour Market Outlook survey findings suggest that there is little cause for getting out the bunting. It suggests that wage growth expectations for the year ahead have strengthened modestly over the past three months, but remain subdued. Median basic pay expectations in the 12 months to September 2018 for the private sector remain unchanged at 2%, which is consistent with official data which show that basic wage growth has settled at between1.8%-2.2%.

However, perhaps the more interesting data reveals some of the reasons why wages have failed to keep pace with inflation and respond to a low unemployment rate. These include weak wage pressure from staff, limited skills shortages and low productivity. For instance, almost two-in-five private sector firms say that are under no pressure to increase wages for their staff. The most common reason given by private sector employers (23%) for the lack of pressure is a recognition among workers that the business cannot afford generous pay increases, underlining the productivity challenge many firms face. According to the most recent official data, productivity has fallen for the second consecutive quarter, and it should come as no surprise that wage growth has not risen given the close relationship between pay growth and productivity in the UK:

It remains to be seen, therefore, whether employers will be able to meet even modestly higher pay expectations if productivity improvements fail to materialise between now and the time of their next basic pay award.

What we’re seeing, therefore, is that it is the UK’s ongoing poor productivity growth that is preventing employers from paying more, not their inability to find or retain staff. This is why, in the CIPD’s view, the Chancellor should have prioritised investments that will support workplace productivity improvements in last week’s Budget. And, as the CIPD recommended in its budget submission to HM Treasury, investing in support for small firms and skills development initiatives is essential to help to drive productivity gains over time. The evaluation report of our People Skills pilot scheme shows that the provision of quality, locally delivered HR support for SMEs will go some way to tackling the productivity challenge gripping the UK economy. While our submission was not taken on board by the Chancellor on this occasion, the CIPD does continue to meet with policy makers to demonstrate the vital role HR can play in improving productivity just when the UK really needs it.

Gerwyn Davies

Gerwyn Davies, Labour Market Adviser

Gerwyn is the CIPD’s Public Policy Adviser for a wide range of labour market issues. With lead responsibility for welfare reform, migration and zero-hour contracts at the CIPD, Gerwyn has led and shaped the policy debate and achieved substantial national media coverage through various publications. These include Zero-hours contracts: myth and reality (2013) and The growth of EU labour: assessing the impact on the UK labour market (2014). In addition Gerwyn authors the institute’s high profile and influential quarterly Labour market outlook report. Gerwyn is an experienced labour market commentator, making regular appearances in the national media and on other public platforms, including several appearances before the House of Commons Work and Pensions select committee.

Explore our related content


Race and employment

Explore the UK legal position and main issues employers face when dealing with race discrimination in the workplace

Read more

As the new minister for immigration, one of the first tasks for MP Caroline Nokes is to publish the Home Office’s long-awaited White Paper on a post-Brexit immigration system. Despite a running delay on publication to date, Home Office officials have been working to engage and seek the views of business and trade bodies. As part of this exercise, the CIPD has recently been invited to sit on the Home Office’s primary employer forum of some fifteen organisations that will feed in research and insights, and act as a sounding board to ministers and civil servants as they construct a future immigration policy.

The forum will play an important role alongside the evidence collected in the White Paper and the ongoing work that the Migration Advisory Committee (MAC) is undertaking. The first session of the forum will take place on 19 January.

Being on the forum provides the CIPD with an excellent opportunity to showcase the research we have conducted on what employers want from a post-Brexit immigration system. During the first half of 2017, the CIPD undertook a large project with the National Institute of Economic and Social Research (NIESR) to gauge employer views. It consisted of a survey of 1000 employers, six roundtables up and down the country (including London, Cardiff and Glasgow) as well as 26 in-depth case study interviews. Our report, published in June 2017, provided an important wealth of data and workable recommendations that attracted interest not only from the Home Office but also HM Treasury, the Department for Business, Energy & Industrial Strategy and Department for Work & Pensions.

Engagement with MPs and Select Committees

Apart from informing government thinking, the CIPD is also actively seeking to influence debate within Parliament. In November, Ben Willmott, Gerwyn Davies and Paddy Smith from the Public Policy team, met with Yvette Cooper, the Home Affairs Select Committee Chair, to discuss our research. Over the course of the year, the team had also met with Hilary Benn, Chair of the Exiting the EU Select Committee, Kate Green, Chair of the APPG on Migration, and Stuart McDonald, Immigration Spokesperson for the SNP to share the insights from our members.

Elevating the voice of the profession

As our invitation to the Home Office forum shows, the CIPD has been seen as an authoritative voice in the post-Brexit immigration debate. Our membership and the HR profession as a whole are at the coal face of organisations with respect to recruitment and people management issues, and it is their views and experiences that we have drawn on to provide our insight and expertise. We will continue to canvass employer views to surface new data for the immigration debate as part of our next quarterly Labour Market Outlook, which is due out in February.

Partnering the profession

As we continue to gather insight and input into future immigration policy, the CIPD is also working to support its members. Recognising the large number of organisations with EU nationals in their workforce, we have collaborated with Fragomen LLP to create a practical guide to help HR and employers manage and support their migrant workforce through Brexit.

While the ongoing Brexit negotiations mean the results are still far from certain, the level of access to EU skills and labour the UK has enjoyed is likely to be impacted, and employers cannot afford to simply ‘wait and see’ in a competitive context before making plans for the future. Workforce planning therefore, has risen to top the priorities and in the coming months we will be publishing more practical guidance, available from our Brexit Hub, that will support our members through this process.

Read more