Third consecutive fall for the VocaLink FTSE 350 Take Home Pay Index while public sector pay enjoys the highest rate of growth

London - 6 October 2011

• Annual growth of the VocaLink FTSE 350 Take Home Pay Index falls to 2.2% for the three months to September – down from 2.7% for the three months to August.

• The VocaLink Manufacturing Index is unchanged in September, remaining at 2.1%.

• Three month annual growth on the VocaLink Services Index falls from 2.7% in August to 2.3% in September.

• The VocaLink Public Sector Index enjoys a modest rise with annual growth of 2.0% for the three months to September, up from 1.7% for the three months to August.

The VocaLink FSTE 350 Take Home Pay Index, which is a measure of private sector earnings, has fallen from 2.7% in August to reach 2.2% growth in September. This is the third consecutive month of declining take home pay growth. In contrast, growth on the VocaLink Public Sector Index has increased to reach 2.0%, the highest rate of growth for the sector this year.

While overall take home pay growth for the private and public sectors is above the levels seen throughout most of 2009 and 2010 this is primarily due to April’s increase in Income Tax free personal allowances. Across all VocaLink Take Home Pay Index sectors, pay growth is still lower than in 2008 when levels stood above 3.0%. This suggests that despite the gains delivered to employees through the recent tax reform, underlying gross income growth remains very weak.

Across the manufacturing and services sector, which make up the VocaLink FTSE 350 Index, take home pay growth is low. For the services sector, it is unchanged this month and across the manufacturing sector it has seen a drop of 0.4% to reach 2.3% annual growth.

Narrowing the pay gap between the private and public sector, three month annual take home pay growth on the VocaLink Public Sector Index is growing at its fastest rate for 2011. While this rise may be surprising given this year’s pay freeze, research by the Policy Exchange has highlighted that the April pay freeze excluded those in agreed multiyear pay deals. For example police officers and teachers in England and Wales will have had their 2.6% and 2.3% respective pay rises honoured up to September 2011.

Commenting on this month’s findings, Marion King, Chief Executive Officer at VocaLink, said:
“The gap between private and public sector take home pay is narrowing this month. The VocaLink FTSE 350 Take Home Pay Index has declined for the third consecutive month while pay growth on the Public Sector Take Home Pay Index is sitting at its highest level for 2011. Digging a little deeper into the numbers, it is likely that private sector pay has been propped up by the April tax reform and, despite a modest improvement this year, public sector pay growth still remains the lowest of all the VocaLink Take Home Pay sectors. As such, underlying take home pay growth is still very weak and consumer spending is being affected.”

Douglas McWilliams, Chief Executive of economics consultancy Cebr, said:
"This month’s slowdown in private sector pay as measured by the VocaLink FTSE 350 Take Home Pay Index is in line with the ongoing concerns about the strength of the economy. High unemployment rates and the ongoing sovereign debt crisis in the Eurozone risks triggering a double dip recession in the West. There are also fears that the preliminary estimate of Q3 2011 GDP, due at the start of November, could show that the UK economy has contracted in recent months. Unless economic conditions show signs of improving, employees will not see their pay packets getting any bigger in the coming months.”

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