Lately, there has also been a negative impact from Rachel Reeves’s October 30 budget. Although the hike in employers’ national insurance (NI) that she announced then does not take effect until April, it seems there has been an announcement effect, with payroll numbers down 32,000 in November and a “flash” estimate suggesting a further and bigger fall of 47,000 last month.
These figures are prone to revision, but they chime with survey evidence pointing clearly to a cooling of the job market.
This has many implications. Firms anxious to limit the extent to which their employees are working from home have found it difficult to insist on a return to the office when it is easy for workers to vote with their feet and move to another employer. When vacancies and employment are falling, the balance of job market power starts to shift back to employers.
There is, though, a glaring bit of evidence that does not fit the slowdown story. Annual growth in pay, average earnings, was a chunky 5.6 per cent in the three months to November for both total and regular pay, the strongest since last spring.
This figure, which is hard to square with events in the labour market, may be distorted by what was happening a year earlier, but should not be a major concern. The National Institute of Economic and Social Research predicts that earnings growth will subside to 4.6 per cent in the current quarter.
Firms, meanwhile, have signalled that one of the consequences of the NI hike will be smaller pay rises, as they seek to offset the costs. Two important surveys of pay prospects, from Incomes Data Research (IDR) and Brightmine, both point to a significant easing of pressures this year.
IDR surveyed employers and found that pay increases this year will be concentrated in the 2 to 4 per cent range, with 43 per cent of companies in the survey sample planning increases of between 3 and 3.99 per cent, and 37 per cent smaller rises: 2 to 2.99 per cent. For comparison, IDR estimates a median pay increase of 4.5 per cent last year.
More than a third of firms, 37 per cent, said that the increase in NI was “extremely likely” to result in lower pay awards this year, while 32 per cent said this was moderately likely. The chancellor may have avoided a direct tax rise for individuals, but the indirect impact is plain to see.
