UK Employers Eye Pay Rise Amid Worry Over Impact of Government Tax Plans

British employers expect to raise wages by 3% in the next 12 months, according to a survey conducted by the Chartered Institute of Personnel and Development (CIPD). However, some recruiters expressed concerns that artificial intelligence (AI) might shrink their workforce, potentially leading to a significant reduction in staffing levels. The findings come amidst worries over the government’s tax plans, which employers believe could dampen hiring intentions.

Pay Growth Expectations Remain Low

While the report shows that overall hiring intentions are weak, with firms expecting to raise wages by 3%, it is essential to note that this figure has been consistent for six consecutive quarters. One in six employers, however, expects AI tools to enable them to reduce their headcount over the next year. Of those surveyed, a quarter anticipates that headcount will decline by more than 10%. These roles are most likely to be impacted: junior managers, clerks, professionals, and administrators.

CIPD’s Recommendations for Government Intervention

Rachel Reeves, the UK’s finance minister, is expected to announce further measures in her November 26 budget. The CIPD has called upon the government to take a more considerate approach, stating that avoiding additional tax burdens could help mitigate the adverse impact on hiring. This advice comes as people looking for jobs are already feeling the effects of slower recruitment since Reeves’ first budget announcement. Experts from the CIPD emphasize the need for governments and employers to invest in workforce planning, focusing on long-term skills development and equipping employees with AI-driven competencies.

Implications of Slow Wage Growth

According to a Bank of England survey, expectations for wage growth ticked higher, reaching 3.7% in the three months leading up to October. However, official labour market figures are expected to show a modest slowdown in wage growth this week. Economists predict that regular pay will rise by an annual 4.6%, slightly below last month’s figure of 4.7%. Wage growth tends to outpace pay settlements because the latter doesn’t account for workers transitioning into higher-paying positions.

Potential Impact on Interest Rates

While the Bank of England held interest rates steady at 4% recently and hinted at a potential rate cut in December, it still closely monitors pay growth due to its significant influence on inflation. Despite the uncertainty surrounding future job market conditions, employers continue to prepare for the possibility of reduced staffing levels with AI integration.

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