Pay rises up – but not as much as prices

Much of the concern over inflation in recent months has centred not just on the increases in cost, but the aggravating factor of pay falling behind prices, something that may cause increasing problems for those in debt.

Rather than rising to meet the extra cost, wages have been kept down by the threat of unemployment, the struggles companies have faced to stay in business, fear of a new recession and a public sector pay freeze.

The latest inflation figures showed the Consumer Prices Index (CPI) had jumped to four per cent and the Retail Price Index at 5.1 per cent in January. CPI had been at 3.4 per cent two months earlier, so the rise has been sudden and harsh, with food and petrol among notably more expensive commodities.

In response, pay awards have now started rising, according to the latest report by Incomes Data Services (IDS). Although the three month period it covers excludes public sector pay (as there were no settlements scheduled in this time), the figure was still notable as increasing from 2.2 per cent to 2.8 per cent since the previous rolling three month period.

Of course, this is still below inflation and for those with credit card debt or facing possible repossession, there could be a greater need to seek debt management plans or even individual voluntary arrangements.

This may particularly be so because the situation is likely to get worse, according to report editor Ken Mulkearn, who said: “This gap looks set to continue if inflation continues to rise.”

And Trades Union Congress general secretary Brendan Barber noted tax rises and benefit cuts could also hit workers, claiming people are facing “one of the toughest income squeezes for a century”.

By Joe White