Employers will give staff 5% pay rises in 2023 amid labour shortages

A survey of more than 2,000 businesses by the Chartered Institute of Personnel and Development (CIPD) conducted in January, said that more than half of employers said they expect to raise base or variable pay further in 2023 to retain staff.

The report comes as businesses face pressure to raise pay to help staff cope with the cost-of-living crisis and inflation, which is currently at 10.5%.

It notes that the 5% rise in pay, the biggest in 12 years, is still a real-terms pay cut when inflation is taken into account. 

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Employees in the public sector will only see a 2% rise in 2023, the CIPD report predicts.

In the last year, public sector workers including rail workers, nurses, teachers, ambulance staff and postal workers have taken strike action over pay, which has failed to rise with the cost of living.

Meanwhile 57% of employers said they are still finding vacancies hard to fill, and of those, two in five said they would raise wages this year to attract workers. Many expect this problem to persist to either a significant (29%) or minor (36%) extent in the next six months.

Jon Boys, senior labour market economist for the CIPD, said: “Skills and labour remain scarce in the face of a labour market which continues to be surprisingly buoyant given the economic backdrop of rising inflation and the associated cost-of-living crisis.”

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The CIPD survey also suggests that employers appear to be more receptive to hiring people who are returning to work after having time out of the labour market, for reasons other than having a child, such as other caring responsibilities or a health condition. 

More than a third (36%) plan to do this in the next three years, up from 29% who reported they had done so in the past three years, an important development given the increase in inactivity due to health conditions. 

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He noted that the forthcoming introduction of a day one right to request flexible working should “prompt more employers to ensure that they advertise jobs as flexible and provide a range of flexible working practices to attract and retain a more diverse workforce”.

Boys said: “Many employers are recognising the potential to attract certain groups to fill vacancies  - particularly older workers, carers and those with health conditions – but this also requires a focus on improving job quality, particularly flexibility.”