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Should contractor accountants be prepared for a decade of low salary increases?

Should contractor accountants be prepared for a decade of low salary increases?

Employees, including contractor accountants, should be prepared to see their salaries increase at a much slower rate over the next decade than they did in the noughties, according to the CIPD’s chief economic adviser, John Philpott.

ONS data shows that the average annual earnings for a full-time employee in April last year was £25,879. This represented a 37% increase on 2000’s figure, or if you take CPI inflation into account, a real terms increase of 16%.

Mr Philpott explained that we saw strong economic growth throughout much of the 2000s. Inflation and unemployment were low and this enabled earnings to improve. However, those conditions are unlikely to reappear until at least 2015 and in the meantime employees could feel frustrated by their pay packets.

Philpott predicts that the first half of this decade will see the tougher conditions we have experienced since the onset of the credit crisis continue to bite. Rising unemployment puts downward pressure on pay settlements and average earnings are unlikely to rise above about 2% a year.

If this situation persisted until 2020, average salaries would rise to just £30,000 and inflation would cancel out the increase. But Philpott said that is a worst case scenario and he hopes to see growth picking up during the second half of the decade. If that happens, average earnings growth for the decade should be around 3%, meaning a median salary of £34,000 in 2020.

Earnings capacity will be influenced by a number of factors, including skills and experience, and employers will pay a premium for people with skills that are in high demand.

Meanwhile, the Department for Business, Innovation and Skills has launched a consultation into proposals to make it easier for investors to understand company reporting and to encourage more detailed data to be published about the pay rates of executives.

The consultation will also consider whether companies should follow the guidance of the Women on Boards report and publish data showing how many women are board members.

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Image: Injured Piggy Bank WIth Crutches by kenteegardin

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