• Take home pay index remains close to all-time low
• Increase in Retail Price Index means less spending power for consumers
• Tough conditions in manufacturing sector continue

5 January 2007: The Voca take home pay index1 shows that UK disposable incomes are being squeezed by slackening pay growth against a background of rising inflation. Growth in take home pay remains near the index’s all-time low (2.6 per cent in November), at 2.9 per cent in December. Set alongside the considerable recent increase in inflation, as shown by the Retail Price Index, this points to a tough 2007 for consumers and retailers.

The Voca industry index, which reflects pay growth in the manufacturing sector, fell for the fifth month in succession to 2.2 per cent in December from 2.7 per cent in November. This is the lowest rate since April 2006 and reflects concerns in the sector about slowing expansion. The Voca services index, which reflects pay growth in the services sector, was up to 3.2 per cent from 2.5 per cent in November.

Richard Cooper, head of marketing and communications at Voca, said:
“The Voca index shows growth in take home pay finishing 2006 at just over half the level at which it finished 2005. This is a dramatic slow down in the rate of pay growth over the year and, as 2007 starts, UK employees will be feeling the pressure on their pay packets.”

Douglas McWilliams, chief executive of cebr, the economics consultancy which analyses the index for Voca, said:
“With inflation rising during 2006 to 3.9 per cent and growth in pay slowing, growth in consumer spending power is being seriously affected. Retailers could suffer from major belt-tightening in 2007 after what we forecast to be strong Christmas trading. In particular the Voca industry index highlights hard times for the manufacturing sector.”

Voca processes over 90 per cent of UK salaries and the Voca take home pay index is the most timely and accurate disposable income data available in the UK. It is based on actual payments made to employees on a three-month moving average compared with the same measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.

To read the full take home pay index report, please click here.