UK pay rises: how much should employers pay their staff in 2023?

Following waves of public and private sector strikes, the past month has seen multiple pay rise triumphs for UK workers.

Last week, RMT workers accepted a salary increase of 14%. Aldi also changed its hourly rate to £11.40 per hour, joining fellow retailers like Pret a Manger in upping rates.

As more employers attempt to offer a competitive salary to attract and retain talent, data from the Office of National Statistics (ONS) shows that average weekly earnings by industry increased by 4.97% (excluding bonuses) between January 2022 and 2023.

It’s not all good news, however. Real wage growth for UK workers declined 3% during 2022 according to research from the Trades Union Congress (TUC) – among the largest falls in growth since comparable records began in 2001.

Today, the Bank of England announced that the rate of inflation has made a surprise jump to 10.4%. With little respite on the horizon for employees, it is paramount for companies to provide financial support for team members in the months ahead.

Below, we offer a sector-by-sector breakdown of the rate of pay progression in the UK, and advise how employers can remain competitive when rewarding staff members this year.

Which sectors have had the biggest annual wage growth?

Startups has analysed historical data from the ONS salary survey, which is released each month, to see how remuneration has developed between January 2022 to 2023.

According to the findings, the largest private sector wage increases have occurred in the professional, scientific, and technical activities. On average, pay has surged by 9.5% in the past year.

This is likely due to the digital skills gap, which has led many companies in the technology sector to search overseas to find in-demand expertise.

The issue has also been exacerbated by the closure of Tech Nation, whose Global Talent visa scheme played a key role in bringing thousands of talented tech workers to the UK.

The industries with the lowest pay rises include arts, entertainment, and recreation (2.26%) and education (2.95%).

That businesses in the education sector have not upped staff payments is likely due to the ongoing childcare crisis, which has seen the number of childcare providers in the UK drop by 4,000 between 2021 and 2022.

In his recent Spring Statement, chancellor Jeremy Hunt announced more financial aid for early years childcare providers. He said the government will offer up to 30 hours of free childcare support per week for toddlers under three in the March budget. However, this will not be rolled out until 2025.

Why is it important to offer competitive wages?

The Great Resignation has seen huge swathes of staff members packing up their desks and switching to better, often more highly paid roles. As a result, the majority of businesses have been forced to add high staff turnover to their list of economic woes.

While wages are not the only incentive for people searching for new roles, they remain a big influencing-factor for job seekers.

That’s why it’s crucial for companies to revisit employee pay calculations, to ensure they are offering the right amount for the position advertised. Researching the average amount that competitors are offering new hires (also known as industry benchmarking) is the best way to do this.

Against a backdrop of worker shortages, not to do so means companies risk losing out on top talent to rivals. Forward-thinking companies have already begun drawing up plans to meet heightened salary expectations – particularly evident amongst university graduates.

Last month, the CIPD’s quarterly ‘Labour Market Outlook’ reported that 55% of employers said they expected to raise base pay by 5% in 2023, in order to meet recruitment and retention challenges.

Our full guide on how much to pay your staff has more guidance on working out salary benchmarks.

What if I can’t afford a pay increase?

Suggesting that companies pay their staff more is a bit like proposing that companies make more profit: it’s all a bit Captain Obvious.

Most firms would offer their staff more money if they could. But the cost of living crisis has hit employers as well as employees.

For many the need to recruit talented workers for growth is trumped by the need to survive record high energy bills that has contributed to blisteringly high inflation and unaffordable supply chain costs.

In this context, business owners should explore alternate routes to paying staff. Our guide to employee benefits has over fifty perks and subsidies that can relieve financial stress for colleagues, without wrecking the firm’s bottom line.