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For once, good news for low income earners as pay rises quickly

The latest income data published by the Office for National Statistics (ONS) present some good news for the low paid in the UK – their gross earnings in the year to April this year rose at the fastest rate for any income group. The 6.2% average increase for the low paid is largely the result of the increase to the National Minimum Wage. Coupled with the above-inflation increases to the personal allowance for income tax in recent years, the growth in net earnings for the low paid has also been significant and has resulted in a decrease in income inequality in the UK.

The trend can be expected to be repeated in the year to April 2017 due to the introduction of the National Living Wage (NLW) on 1 April this year. At £7.20 per hour for all employees aged 25 years or more the NLW for 2016/17 is 7.5% higher than the National Minimum Wage it superseded for those over 24 years of age.

By contrast the average increase in pay for all income groups was 2.2% - although this was still the equal highest annual growth rate since the 2007/08 financial crisis. The growth rate was also higher than price inflation for the same period (0.3%) with the result than average earnings increased in real terms by 1.9%. This can be largely ascribed to moves in pay in the private sector where average earnings rose at a faster rate than in the public sector.

The ONS data does, though, contain some continuing points of concern elsewhere:-

  • There is still a clear gender pay gap, with earnings for women being, on average, 9.4% lower than those for men. The gap narrowed slightly in the year to April but is still material. Indeed the gap amongst the highest income earners is circa 20%

  • Average earnings in real terms are still below the level just prior to the 2007/08 financial crisis - some 6.8% according to estimates by the Resolution Foundation (a ‘think tank’ with a mission to improve living standards in Britain).

So good news overall with real income growth and a reduction in income inequality - but the gender pay gap is clearly not likely to be resolved anytime soon.

Martin Upton

Director of the True Potential Centre for the Public Understanding of Finance (True Potential PUFin)

26th October 2016

The establishment and activities of the Open University’s True Potential Centre for the Public Understanding of Finance have been made possible thanks to the generous support of True Potential LLP. True Potential has committed to a five-year programme of financial support for the Centre. Views expressed by True Potential PUFin may not reflect those of True Potential LLP.

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