The reason why Brits got a 4.7% phantom pay rise in December

Tom Belger
·Finance and policy reporter
·3-min read
EMBARGOED TO 0001 FRIDAY FEBRUARY 19 File photo dated 03/07/18 of money. Households' hopes for their personal finances over the next 12 months improved in February, reaching close to levels seen before the coronavirus lockdowns started, according to an index. Issue date: Friday February 19, 2021.
Average pay has risen 4.7% over the past year. Photo: PA

Average wages have surged 4.7% for UK employees over the past year, rising at their fastest pace since 2008.

The average staff member earned £571 a week before tax and including bonuses in December, according to Office for National Statistics (ONS) data on Tuesday. The apparent earnings growth marks an acceleration of the already-significant 3.6% year-on-year growth seen a month earlier.

But the figures may come as a surprise to many, as the pandemic and repeated lockdowns plunged Britain into the worst economic downturn in three centuries last year. Millions of households have seen their incomes squeezed as jobs, hours and pay have been slashed.

The figures do not mean the average worker has received a 4.7% pay rise, however.

The pandemic has had a disproportionate hit on the low-paid, with many on less secure contracts and in badly affected occupations and sectors like hospitality and retail. Part-time workers and younger workers have also taken a particular hit, and their average earnings are typically lower.

READ MORE: Unemployment reaches highest level since 2016

Disproportionate job losses among the lower-paid leave average earnings higher among staff still in work, even if some of those workers' actual incomes have seen little change.

As Samuel Tombs, chief UK economist at Pantheon Macroeconomics, put it: "The recent rebound in year-over-year growth in average weekly earnings primarily is a by-product of job losses over the last year being concentrated at the lower end of the pay spectrum."

The fall in lower-paid workers means underlying earnings growth "isn't as strong as it looks," added Thomas Pugh, UK economist at Capital Economics.

Meanwhile many employers have also cut back on hiring, meaning fewer workers in entry-level jobs on lower pay. "A fall in new entrants to the labour market (who are lower-paid than average) has contributed to an increase in average pay, with a magnitude of approximately 1%," the ONS noted.

The ONS itself noted that underlying wage growth, which seeks to look at wage changes factoring out this decline in lower-paid roles, is "likely to be under 3%."

Average wage changes have also varied significantly by sector, with the largest gains in business and financial services.

The latest data underlines the scale of job losses in the UK, with a 2.5% fall in employee numbers alone in the past year and unemployment at its highest rate since 2016. The number of workers on employer payrolls is 726,000 lower than February, though it rose by 83,000 between December and January.

The earnings data also covers only employees paid via company payrolls, and will therefore not include many self-employed workers paid via invoicing, cash or other means. The impact of work or earnings drying up for many of the self-employed, and the fact many are ineligible for crisis income support schemes, is also therefore outside the scope of the data.

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