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Employment

Benefits must rise alongside record wage growth, economists warn 

It would be “wholly unfair” for the government to hold down benefits says leading economists, as record wage growth boosts the income of some and not others

The pace of wage growth has caught up with rocketing prices for the first time in nearly two years, but experts are calling for this boost to be shared throughout the economy.

The latest employment data from the Office for National Statistics (ONS) showed that wages, excluding bonuses, were up 7.8%, while July’s inflation rate eased to 6.8%. This means that prices have risen by 6.8% compared to the same month a year ago, but wages have increased by 7.8%.

“This means people’s real pay is no longer falling,” said Darren Morgan, director of economic statistics at the ONS.

The figures have been reported as a welcome reprieve for stretched family budgets, however for people receiving benefits, the boost may be short-lived.

While earnings are growing at a record pace, this “short-term pay boost” could end up benefiting pensioners more than workers, warns Hannah Slaughter, senior economist at the Resolution Foundation. 

Under the triple lock, pensioners receive an annual pay increase tied to whichever is higher; CPI inflation, average earnings or 2.5%. Therefore, record wage growth is set to deliver a big permanent boost to the state pension next April. 

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“In this context it would be wholly unfair to hold down working-age benefits, especially as poorer households are already set to see their incomes fall next year,” Slaughter continued. 

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While ministers have been keen to stress their commitment to the triple lock, however costly it may be, they are looking at ways to cut benefits spending, the Telegraph reports. When wage growth was below inflation in June, ministers considered uprating benefits in line with the lower measure, in a drive to reduce benefits spending. With page growth now outpacing inflation, ministers may still choose the lowest measure next April. 



“Earnings grew faster than inflation for the second month in a row, though they remain £11,000 lower in real terms than if pre-financial crisis trends had continued,” said Stephen Evans, chief executive at Learning and Work Institute.

“The cost of living crisis is far from over”, he continued. 

Reacting to the latest figures, chancellor Jeremy Hunt said wage growth “remains high”, but added: “For real wages to grow sustainably we must stick to our plan to halve inflation.”

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