Covid-19 Impact: Higher Than Usual Instances Of Pay Freeze

Summary

• Employers in the UK trying to save on costs, in view of an uncertain business environment – XpertHR Survey
• The slow economic activity is one of the key reasons why employers are reluctant to give a pay raise, as demand levels across goods and services continue to be sluggish
• The scenario is not likely to change until the end of 2020

XpertHR, a leading human resource data provider in the UK has come out with a survey on pay revisions in the country. The results show that nearly 16 per cent of the pay deals did not offer any salary increase in three months to June 2020. This figure was recorded as 15 per cent during March to May 2020.

The HR firm added that in a normal year, it is expected that at most 5 per cent of all pay awards end up in a pay freeze. The firm had collected and analysed data of 2.3 million employees for this survey.

The phenomenon which may be seen as a sign of cautiousness among employers is expected to continue until the threat levels on the pandemic show signs of abating. The XpertHR survey also showed that in the three months to June 2020 period, the median pay increase across the economy remained unchanged at only 2.2 per cent.

Sheila Attwood, benefits editor at XpertHR said that many companies are postponing the payment of their April 2020 pay award until later in the year. However, there are signs that many will declare a pay freeze instead.

In all likelihood pay raises will not happen till December 2020

The amount of business uncertainty in the UK and across the world is unlikely to subside at least until the end of 2020. According to the Office for National Statistics (ONS), the British economy would shrink by as much as 14 per cent during 2020 before it is able to make a recovery next year.

Despite working round the clock for more than five and a half months now, the NHS has not been able to put a cap on the growth of new corona infections in the country. Businesses have not been able to achieve their full productivity levels as social distancing measures are preventing them from bringing back their staff in full strength or make them work the same way as they used to before the pandemic hit the nation. Malls, restaurants, hotels, and recreational establishments are seeing reduced business activity levels, because people are still scared of catching the infection and are wary to come out of their houses despite the end of the lockdown.

The slow state of recovery is not instilling enough confidence amongst employers

Barring a few sectors such as essentials, housing and retail, most others have been experiencing a sluggish start since the lockdown was gradually removed in the first week of May 2020. There are two factors that are responsible for slowing down the pace of recovery. Firstly, the continuing safety restrictions prescribed by the government in workplaces for the safety of staff as well as customers. These restrictions are only pushing up the costs of the businesses and making it all the more difficult to ramp-up recovery. Secondly, the slow uptake of consumer demand in the country.

This is true not just for final goods and services, used directly by consumers, but intermediate goods are also seeing a slower uptake of demand. This is making the manufacturers nervous that the recovery process may not remain sustainable for more than a few months, and that is why they are unwilling to fully open up their business in the absence of clear signs of economic growth.

The current high rate of unemployment in the UK

The United Kingdom is currently reeling under a spell of unemployment like it had not seen in decades. The expectations on the shrinking rate of the GDP will certainly put more pressure on the country’s employment rates as well as inflation. The number of people registering for unemployment benefits has also been rising in the country, making it all the more expensive for the government to extend continued support.

If the unemployment rate continues to be high in the country, it will have a very bad impact on the economy. The expenditure as well as demand will come down, which if continued, could lead to a long-term recession.

Selective measures are being undertaken by the government to ramp up business activity

After the opening of the lockdown, the government has made two major announcements to prop up demand in housing and hospitality: two of the largest employment generating sectors of the economy. For the housing sector, the government has allowed a stamp duty holiday on houses costing up to £500,000 till March 2021 and a VAT reduction to 5 per cent from 20 per cent for the hospitality sector. Both these measures are expected to provide a boost to the demand levels in these industries till the time a sustained economic recovery comes around.

Finally, the slowing economy is expected to deter businesses to increase their levels of business activity beyond which they don’t see a significant market offtake. On the pandemic front, we could see some relief coming from the vaccine development front. If everything goes on without any hiccups, then we could see a vaccine to contain the coronavirus hitting the market by September 2020. However, the state of economic recovery and wage growth would remain truncated till a majority of the population is not vaccinated.

To sum up, the pay awards by private companies appear to stumble from the results of a recent survey by XpertHR, a prominent firm in the human resources domain. For the period of April to June 2020, 16.4 per cent of pay awards were in the form of a pay freeze. This number is close to 5 per cent during normal times. It probably reflects the concern of businesses regarding an economic turnaround in the near future, due to the ongoing impact of the coronavirus led pandemic.