22OCT

UK real pay up 0.6% as payrolls shrink

3 min read

16:23UTC

Regular pay grew 0.6% after inflation in June to August, the ONS said, while payrolled employees were down 111,000 on the year.

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EconomicAssessed

Key takeaway

Real regular pay rose 0.6% while payrolled jobs fell by 111,000 on the year.

Regular pay, earnings before bonuses, grew 0.6% after inflation in June to August, the Office for National Statistics (ONS) reported on 20 October⁠¹. That figure uses CPIH, the consumer prices index including owner occupiers' housing costs; on CPI, the consumer prices index, the gain was 0.8%. In cash terms regular pay rose 3.7%: 6.3% in the public sector and 3.0% in the private sector, up from 2.9% in the previous release.

Vacancies fell to 691,000 in July to September on an early estimate, 37,000 fewer than a year earlier, and unemployment stood at 4.7%⁠². Payrolled employees were down 111,000 on the year to August, a smaller fall than the 145,000 in the previous release, with a provisional September fall of 66,000.

Pay is where the Budget meets the household. Wages rising 0.6% faster than prices keep income tax flowing without a rate rise. But payrolls have shrunk by 111,000 in a year, and the 6.3% public sector rise is a bill the Treasury pays rather than a receipt it collects.

Deep Analysis

In plain English

The Office for National Statistics (ONS) publishes figures on jobs and pay every month. Regular pay means wages before any bonuses. Pay is rising slightly faster than prices, so on average workers can buy a little more than a year ago. Public sector workers, such as nurses and teachers, have had much bigger pay rises than people in private companies. At the same time there are fewer jobs. About 111,000 fewer people are on company payrolls than a year ago, and fewer jobs are being advertised.

Deep Analysis

Root Causes

Public sector pay is set by review bodies that look back at past inflation and recruitment problems. Their awards land in a lump, which is why public pay can jump while private pay drifts.

Employers facing higher payroll taxes and minimum wage rises have tended to cut hiring rather than pay. That keeps average pay rising for those in work while the total number of jobs falls.

What could happen next?

Consequence
Rising cash wages keep income tax receipts growing, which supports the Budget without rate rises.
Risk
Continued payroll falls could push unemployment above 5%, cutting receipts and raising benefit spending.

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: Between 2008 and 2014 real wages in Britain fell for years, and in 2016 the Bank of England's then governor Mark Carney called it the first lost decade for real earnings since the 1860s. Weak productivity sat behind that squeeze, the same constraint that caps real pay now.

Counter-parallel: In 1978-79 pay claims broke the Callaghan government's 5% pay limit, and public sector strikes followed in the Winter of Discontent. A wide public-private pay gap then fed industrial conflict; today the gap runs the other way, with the state paying more.

Immediate: real regular pay grew 0.6% on CPIH and 0.8% on CPI, with unemployment at 4.7%. The provisional September payroll fall of 66,000 is an early estimate and often revised.

Structural: income tax receipts rise with cash wages, so 3.7% pay growth supports revenue without a rate rise. Public sector pay of 6.3% works the other way, adding to spending, which may help explain why current spending grew 7.0% in September.

Consensus view: The Bank of England's Monetary Policy Committee held Bank Rate at 3.75% in September, but three of nine members voted for 4%, a sign that wage growth above inflation still worries part of the committee. Private pay edging up to 3.0% from 2.9% gives that camp little reason to relax.

Counter-view: Falling payrolls and vacancies point the other way: a cooling Labour market in which firms cut headcount rather than wages. On that view, real pay gains come from fewer, better-paid workers, and the slack will pull wage growth down within months.

Key tension: Whether the 6.3% public sector rise is a one-off catch-up already in the Budget baseline or a pressure that spills into next year's pay rounds.

Sources:Office for National Statistics

Mentions:Office for National Statistics →United Kingdom →England →Mark Carney →Monetary Policy Committee →Bank Rate →Bank of England →

First Reported In

Update #5 · Debt passes £3trn, its ratio below forecast

Office for National Statistics· 22 Oct 2026

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Causes and effects

Caused by

UK public pay up 6.3%, private 2.9%

The October labour data narrowed the 145,000 payroll fall reported in September to 111,000.

Occurred 15 Sept 2026

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This Event

UK real pay up 0.6% as payrolls shrink

Real pay growth keeps income tax flowing without a rate rise, but shrinking payrolls and a 6.3% public sector pay rise cut the other way.

Different Perspectives

Pension Protection Fund

Acting chief actuary Aaron Pang put the rise to 135.0% funded down to liabilities falling 2.1% against a 1.0% fall in assets, reflecting higher gilt yields. On Lowdown's reading, the yields that lift the Treasury's interest bill leave 4,838 company schemes with a £280.7bn surplus that does not reduce state borrowing.

Torsten Bell

The Labour figure wrote on 14 October that the IMF's October figures show the fastest fiscal consolidation in the G7. The IMF forecasts the UK deficit falling from 3.8% of GDP in 2026 to 1.4% in 2031, a squeeze still to be delivered through taxes and spending.

Tax Justice UK

The left-leaning campaign group says ten tax reforms would raise over £60bn a year for public services, and on 22 October asked why higher taxes on extreme wealth remain politically difficult. It offers the tax-led exit to the IEA's cuts; the £60bn is its own claim, not an official costing.

Institute of Economic Affairs

The free-market think tank's Alternative Budget of 19 October would suspend the state pension triple lock for three years, freeze welfare in cash terms and move tax onto a wider VAT. It claims the day-to-day budget returns to surplus in 2027-28, its own projection rather than an official costing.

Resolution Foundation

The living-standards think tank said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October, and its economist Greg Thwaites urged targeted energy support. Its figure lands as a Chancellor who calls welfare cuts a moral duty finalises the 28 October Budget.

Institute for Fiscal Studies

Director Helen Miller said a steady-as-she-goes Budget is not an option, with the IFS putting 2029-30 headroom at about £20bn, The Independent reported on 12 October. The IFS puts the cost of avoiding cuts and funding higher defence at around £35bn of tax rises or benefit cuts, more than any headroom estimate in circulation.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.