Higher wages are on their way, says CBI chief

'The good news is, it is about to come'

The cost of living is likely to be an important battleground before the general election (Getty Images)

Bosses must give workers a pay rise next year in the interests of “fairness” and to boost the economy, the leader of the top business trade body believes.

As the Confederation of British Industry prepares for its annual conference on Monday, its director-general, John Cridland, waded into the row over wages that continue to shrink in real terms as pay rises lag behind inflation.

“The good news is, it is about to come,” he said of the long-awaited, substantial pay rise that would finally allow a broad swathe of British workers to feel the benefit of the economic recovery.

“First investment raises productivity, [then] productivity raises wages. At the beginning of this year, none of those had turned. Now investment has turned: it has grown by more than 10 per cent this year,” Mr Cridland added.

“What has happened is the wage growth I hoped to see this year is only going to come next year but I am confident it will come. As director-general of the CBI, I’ll go further: it must come next year.”

The cost of living is likely to be an important battleground before the general election. Britain will probably be the fastest-growing major economy this year, but inflation is still twice as high as average wage growth, which has been traded off in return for record employment levels; wages grew 0.6 per cent year-on-year in the quarter to July.

A Populus survey for the Financial Times yesterday found that only one in seven adults felt the benefit of a recovery, illustrating David Cameron’s challenge of convincing voters that the Coalition’s stewardship of the economy is good for all.

Big business is on a collision course with Ed Miliband, who has pledged to lift the minimum wage to at least £8 an hour if he becomes Prime Minister.

Mr Cridland added: “Politicians can’t mandate wage growth; politicians can’t say that people shall have a pay rise. It needs to come because workers are more productive and adding more value, and that is why it needs to follow business investment.

“Does the economy need it? Yes, it does need it. It needs it for fairness and it needs it for consumption.

“The biggest thing that has held back wage growth is a success story of our labour market: we are employing more people than ever. If you are employing more people that actually mutes wage growth because it restricts skill shortages. Do we want a smaller labour market?”

A new analysis of the British workforce by the independent think-tank the Resolution Foundation found that continuing wage falls this year have been caused by a decline in managerial jobs and an increase in low-paying roles that are typically filled by young people. The report singled out growth in cleaning and care roles for contributing to the rising proportion of low-paid jobs.

According to Bank of England forecasts, wage growth will only begin to outstrip the cost of living again during the middle of next year.

The Bank’s Governor, Mark Carney, told the Trades Union Congress annual meeting in September that, once they had been adjusted for inflation, wages had dropped by around a tenth since the onset of the financial crisis – a fall not seen since the 1920s.

“The weakness of pay has, in effect, purchased more job creation. It has not resulted in an unusually high level of profits,” Mr Carney said.

Some companies have struck out over pay – to the displeasure of investors. Shares in JD Wetherspoon fell this week when the pubs group disclosed that profit margins would shrink after it raised hourly pay for its workers by 5 per cent in October. The group’s founder, Tim Martin, said he needed to attract and retain staff and maintain a competitive edge.

The CBI speaks on behalf of 190,000 businesses employing seven million people in total. Mr Cridland also raised concerns over the immigration debate.

“The business community feels it has been left “out in the cold”, he said, as Mr Cameron has battled to curb the number of workers arriving in Britain from inside the European Union.

“Every enterprise, small or large, that I meet tells me they couldn’t run their business successfully without immigrant labour, and particularly Eastern European labour. So why are we allowing a mood to become prevalent that actually these people are damaging the economy?

“Of course we need to upskill the UK workforce. Of course we need to reach a point where we are less dependent on Eastern European engineers because we have enough engineers of our own … but that is going to take years – and those businesses need to be successful today.”