Bankers and consultants in the City of London have received double-digit pay increases while those on low incomes have seen the value of their earnings plunge, new figures show.
The Centre for Economics and Business Research (CEBR) said the “highest earners now enjoy annual pay growth of 10 per cent, while lowest earners see just a 1 per cent rise”.
Bankers, insurance brokers and corporate lawyers are among those most likely to have secured an inflation-busting pay rise, the CEBR said.
The consultancy said the UK economy was now a “tale of two labour markets”, with the lowest-income workers seeing huge price rises hit their living standards.
Consumer price inflation is expected to spike to a 42-year high of 13.3 per cent after October when households face average energy bills of more than £3,500, with a further increase expected in January.
The CEBR figures underline how severely impacted many poorer households will be, adding to pressure on the government to promise further financial support. The report warns that there is abundant anecdotal evidence of people in work struggling to make ends meet.
When adjusted for the rising cost of living, wages fell 0.9 per cent on average in the three months to May, and the Bank of England now expects real earnings to fall this year and next by the most since records began.
The pain has not been distributed evenly, with well-off, skilled workers taking advantage of shortages in labour to bargain for better pay, bonuses and conditions.
With inflation ranging from 5.5 per cent to 9.4 per cent over the first half of 2022, even the pay rises seen at the top end of the scale mean many workers’ real pay growth is close to zero.
Average pay rises in finance and insurance has been “exceptionally strong”, peaking at 19.8 per cent in February and remaining well above 10 per cent in the latest data.
The picture is far more concerning for lower-income workers.
The CEBR said: “They are seeing exceptionally low pay growth, making it entirely unsurprising that there are so many stories emerging of families making impossible choices, for instance between cutting down on food consumption or falling behind on mortgage payments.”
Nina Skero, the CEBR’s chief executive, said: “Two prevalent yet opposing narratives have emerged. One focuses on the significant bargaining power held by employees as they take advantage of the tight labour market to negotiate record pay rises and generous bonuses.
“The other points to the decline in wages once inflation is taken into account, and provides abundant anecdotal evidence of people in work struggling to make ends meet.”
It came after separate research found that government support for low-income households during the cost of living crisis falls short of offsetting the losses they face, with some families up to £1,600 worse off a year.
The additional £1,200 offered to the poorest in society this year will fail to compensate for three major blows to their income from October 2021 to October this year, the analysis suggests.
The loss of the £20-a-week benefits uplift, an annual uprating out of line with inflation forecasts, and a jump in the energy cap will mean the worst-off families cannot bridge the gap, it says.
The report, commissioned by former prime minister Gordon Brown, found that the largest families would face the biggest losses.