UK pay growth since the start of the pandemic has been strongest for top earners in London, leading to a widening of regional inequalities, according to analysis released on Tuesday by a leading think-tank.
The Institute for Fiscal Studies said that between February 2020 and May 2023 mean earnings for employees living in the UK capital had increased by 5 per cent, after adjusting for inflation, to £4,400 a month before tax.
Many areas within commuting distance of London had also seen pay increases of more than 4.5 per cent — far above the average national increase of 2.7 per cent.
“Inequality in mean earnings across the country had been falling in the two decades leading up to the pandemic, with the poorest areas seeing the highest pay growth. Since 2020 we have seen a reversal of this trend,” said Xiaowei Xu, senior research economist at the IFS.
London had benefited, she said, because pay growth since 2020 had been strongest in sectors concentrated in and around the capital. Outside the energy sector, the biggest pay rises had been in administrative and support services, where mean earnings were almost 10 per cent higher in real terms than in 2020, and in professional services, where they had risen by 8.6 per cent.
Mean earnings in finance were also 7.6 per cent above their pre-pandemic level, even though these had fallen from a 2022 peak, while in information and communication they were up 5.5 per cent.
The IFS findings, based on payroll data collected by HM Revenue & Customs, will be uncomfortable reading for policymakers, who believe that rapid wage growth is fuelling price rises and that workers will need to take a hit for inflation to return sustainably to the government’s 2 per cent target.
The figures are surprising, given that the labour shortages plaguing the UK economy since its post-Covid reopening have been most acute in low-paid sectors, such as hospitality and logistics.
HMRC’s data suggests that mean earnings in these sectors, and in others including manufacturing, education and public administration, have fallen in real terms since 2020.
However, pay gains in the capital have not been evenly shared. The IFS said that despite rapid growth in mean earnings, pay at the median in the capital had risen only 1.7 per cent in real terms since the pandemic began, to £2,700 a month before tax.
This was in contrast with the pattern seen elsewhere in the country, where middle earners had in general fared better than those at the top, leading to a narrowing of inequalities at local level.
Source: Economy - ft.com
