VocaLink’s take home pay index reaches 18 month high following budget changes
- Overall take home pay index increases significantly to 4.2% in April, the highest level since September 2006
- Service sector pay growth rises 1% to 5.2%, the highest level for nearly two years
- Manufacturing remains steady at 2.4% for the second month in a row
7 May 2008 – VocaLink’s latest take home pay index for April shows a considerable rise to 4.2%, driven by the income tax changes introduced in Gordon Brown’s final budget as Chancellor†. This is likely to be welcome news for many workers in light of recent rises in oil and food prices and general concerns over the economy.
Although the manufacturing sector registered a notable 0.5% growth during the first quarter of the year, the VocaLink take home pay index shows that pay growth has not responded to the recent upturn in the sector’s fortunes. The manufacturing sub index remained at a low 2.4% for the second month in a row as wages are held down to boost competitiveness.
The main driver of growth for VocaLink’s take home pay index has been the services sub index, which saw a massive 1% increase from 4.2% in March to 5.2% in April – the highest level since June 2006. The sector grew by 0.6% in the first quarter of 2008 marginally down from 0.7 per cent growth in the final quarter of 2007. Within this, growth in the finance and business services sector slowed, but remained positive, despite the impact of the credit crunch.
Richard Cooper, marketing director at VocaLink, said, “The substantial rise in overall take home pay in April, allied to strong retail sales numbers implies a greater confidence from consumers than many would suggest.”
Commenting on the latest results, Douglas McWilliams, chief executive of economics consultancy cebr, said, “The reduced level of income taxation for those earning between £19,000 and £40,000 has boosted VocaLink’s take home pay index to the highest level since September 2006. We expect that the Bank of England will keep interest rates on hold in May following the recent improvement of conditions in financial markets and likely further beneficial effect of the Bank of England’s Special Liquidity Scheme.”
VocaLink processes over 90% of UK salaries and the VocaLink 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.
Follow this link to read the full statistical report.
† In the March 2007 budget, the key change was the reduction of the main rate of tax from 22 per cent to 20 per cent – increasing the take home pay of those earning between £19,000 and £40,000.