Prime minister Rishi Sunak said pay rises should be “sustainable” and come only as rewards for productivity, following data from the Office for National Statistics (ONS) which showed a record pay increase in the three months to June.
Sunak told ITV News that it is not for the government to intervene in pay talks between companies and employees.
He said: “As a general rule, we need pay rises that over time are sustainable and that means pay rises that are focused on rewarding productivity increases […] I want people to be paid more, but that means we have to have a growing economy where productivity is rising.”
ONS data released this week showed pay rises increased by an average of 7.8% in April to June 2023 compared with the year before, the highest growth rate since records began in 2001.
However, when adjusted for current high levels of inflation, pay excluding bonuses rose by 0.1%.
Steve Herbert, wellbeing and benefits director at Partners&, said basing pay rises purely off productivity in a cost of living crisis will be seen by many workers as unfair.
Speaking to HR magazine, he said: “Employees today are facing a double whammy of high inflation (with food inflation remaining in double figures), alongside rising rental or mortgage costs.
“This situation has persisted for some time, and many working households are genuinely struggling to keep their heads above water in 2023.
“So while employers could opt to not increase pay on productivity grounds, such a message will almost certainly land very badly with their workforce.”
More on pay rises:
Public-sector pay rises lag behind private sector
Real wages rise for first time in 18 months
What to do as pay expectations skyrocket
Herbert said if workers have financial difficulties, employers are likely to see negative effects on their performance.
He added: “Without adequate pay rises, some employees would be forced by financial circumstances to seek alternative employment, and others will descend into genuine financial difficulties.
“Either option is likely to result in reduced productivity losses, and it follows that this could lead to a perpetual downward spiral come the next pay awards exercise.
“It follows that a more pragmatic approach to pay awards is good for both employees and the employer.”
However, employers who are facing rising costs may be unable to offer pay rises according to Terry Payne, global MD of recruitment agency, Aspire.
Speaking to HR magazine, he said: “Looked at through the lens of an employer, businesses themselves are also struggling with rising costs. And so, by awarding pay rises at such a difficult time, they are going to expect something in return – that is, an uptick in productivity and output.”
Payne said while salary is the most important thing for candidates when choosing a job, businesses unable to offer high wages should review how else they can make the role attractive.
He said: “Whether it’s the interesting or challenging nature of a role to flexibility or a diverse and inclusive culture, it’s never been more important for employers to think creatively about how they can stand out from the crowd when they don’t have the deepest pockets.”
