Tag Archive | "cpi"

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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Are any contractor accountants getting pay rises?


26% of employers do not intend to increase salaries this year as sluggish private sector growth and public sector austerity measures impact companies’ capacity to reward their employees.

The latest annual Reward Survey from the CIPD shows that while 99% of employers will not be cutting pay this year, only 65% will actually be increasing it. A further 9% have delayed their review of salaries.

60% of respondents said market rates were the most important factor when it came to determining salary levels and 61% link pay to individual performance, at least in part.

67% of organisations operate reward schemes that are performance-related and the most common options are pay rises based on merit and individual bonuses. 29% also operate non-monetary awards for individual clerical and manual members of staff.

The CIPD’s performance and reward adviser, Charles Cotton, said it’s not surprising that some companies are not able to award salary increases this year. The survey results also show that employers are focusing more on linking pay and bonuses to performance.

Meanwhile, private sector pay edged up by 3% in the first quarter of this year. Inflation is hovering around 4.5% so the rise doesn’t fully compensate but it is an increase which is something public sector workers currently yearn for.

The increase in private sector pay has been led by the automotive and utilities sectors. 3% is still well below the CPI rate and when you factor in the freeze in public sector pay, the average comes out at 2.5%.

Experts are now predicting that the Bank of England will hold the base rate at its historic low of 0.5% until at least November. With inflation rising faster than wages, take-home pay will continue to shrink for a while yet.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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90% of Britains think the economy is in a bad state


Only 10% of people in Britain think the economy is good, ranking us amongst the gloomiest nations in the world, according to a new survey.

24 of the world’s largest economies were polled and it transpired that Japanese and Hungarian citizens were the only nationalities that were more negative than us. And the Japanese have a good excuse after suffering the massive earthquake and tsunami earlier this year.

In contrast, at least 70% of citizens in Australia, China, India, Saudi Arabia and Sweden think their country’s economy is good.

The majority of us can’t see a light at the end of the tunnel either. Only 10% expect the economy to strengthen over the next six months.

The survey was conducted by Ipsos MORI and its MD, Bobby Duffy, said the level of gloom was understandable. We have absurd house prices and the cost of living is rising a lot faster than earnings. It is not surprising that people feel pessimistic and this will impact growth.

It’s not only the man in the street who feels less than happy about the state of the British economy. The BCC has now downgraded its expectations for growth for this year and next.

The Chamber has knocked 0.1 percentage points off its GDP forecasts and at the same time increased the forecasts for annual CPI inflation.

In slightly better news, the organisation now expects just 2.6 million people to be unemployed 15 months from now, instead of the 2.65 million it predicted 3 months ago.

The director general of the BCC, David Frost, said the economy still faces difficult challenges. However, he believes the coalition is right to continue with its plans to reduce the budget deficit. But, the government must also come up with policies that enable businesses to drive the recovery, he added.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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Rainy day savings are making a comeback


The recession has fuelled an increase in rainy day savings, according to Jonathan Davis, an economist at Jonathan Davis Wealth Management.

In fact a recent survey from Mintel found that around 43% of Britons have prioritised saving for a rainy day this year, up from just 15% last year.

Davis said the credit crisis was a wake-up call for a lot of people, who realised that for the last ten years they have based their life on debt.

This is a little like closing the stable door after the horse has bolted but it is still encouraging that people are now looking to give themselves a financial cushion in case of a disaster such as redundancy. Savers should have a reserve fund equal to at least six months average spending, to get them through unforeseen difficulties, advised Davis.

Although rainy day saving may be on the increase, few people are saving for their retirement and this is of paramount importance, the expert added.

Savers may not be so happy to learn that the Bank of England has forecast that inflation is going to stay above its 2% target well into next year. Currently the CPI is standing at an annual rate of 3.1%, meaning a basic rate taxpayer needs a savings account that pays at least 3.8% in order to protect the value of their investment.

Now could well be the time for contractors to sit down with their contractor accountant and take a good look at incomings and outgoings and decide how to maximise your assets.

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There needs to be a better way to calculate business rates


Contractor accountants could be interested to learn that the British Retail Consortium has written to the Government asking them to reconsider the method used for calculating business rates.

Business rates are currently based on the RPI and the commercial rateable value of the property. However, the BRC says that using this method could mean some businesses will be faced with a rise of up to 22% in rates payments next year.

Stephen Robertson, the director-general of the BRC, has written to the communities and local government secretary of state asking him to use an alternative method of calculation for the bills due to be set next April.

He pointed out that since the government now intends to use the CPI to calculate pensions this method could also be applied to the calculation of business rates.

The difference between the CPI and RPI can be considerable. Currently the consumer price index shows annual inflation of 3.1% while the retail price index shows 4.7%. Using the CPI for benefit calculations is expected to save the government £5.8bn a year by 2014-15.

22,000 more people are now employed in the retail sector compared to 12 months ago. However, the industry will be unable to absorb more unemployed public sector workers if huge rate increases are inflicted on them.

The chief executive of the Association of Convenience Stores, James Lowman, pointed out that business rates already place a significant burden on retailers. He believes that there is a strong case to freeze business rates rather than increase them.

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