VocaLink
Take Home Pay
Index
February 2011
VocaLink Take Home Pay Index
The VocaLink Take Home Pay Index VocaLink works with the Centre for There are two unique aspects to the
track monthly take home pay levels Economics and Business Research VocaLink Take Home Pay Index.
in the UK. They are compiled using (Cebr) to deliver these powerful and First, it is based upon hard data, not
data captured by VocaLink from the timely indicators of take home pay survey responses – measuring the
salary payments of over 200 FTSE inflation to economists, analysts and salaries deposited in hundreds of
350 companies and over 600 public the media. They are an important thousands of bank accounts each
sector organisations. VocaLink is the indicator of the UK’s economic month. Second, the data is collected
processor for automated payments performance. The VocaLink Take in real time – with the results
in the UK including all Direct Debit Home Pay Indices are split by broad processed and reported within days
and Bacs Direct Credits, which sector group – the VocaLink of the end of each month.
account for over 90%of salary manufacturing index, the VocaLink
payments delivered into employees’ services index, the VocaLink public
bank accounts. sector index and the VocaLink FTSE
350 index.
Take Home Pay Index 1
Key findings
The VocaLink Take Home Pay Index series
Three month average annual change (per cent)
Year 2010 2011
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
VocaLink FTSE 350
Take Home Pay Index
1.0 0.8 0.9 0.8 0.5 0.6 0.8 1.3 1.4 1.6 1.7 1.1 0.6
VocaLink
Manufacturing Index
1.0 0.8 1.7 1.6 2.2 2.7 2.8 2.3 1.4 1.2 2.0 0.4 0.4
VocaLink
Services Index
1.0 0.8 0.8 0.7 0.3 0.4 0.6 1.2 1.4 1.6 1.7 1.2 0.7
VocaLink Public Sector
Take Home Pay Index
1.9 2.1 2.1 1.6 1.3 1.1 1.2 1.3 1.3 1.3 1.3 1.1 1.3
• Annual growth on the VocaLink
FTSE 350 Take Home Pay index fell
to 0.6% over the three months to
January
• The VocaLink manufacturing
remained unchanged at 0.4% over
the three months to January
year-on-year
• Three month annual growth on the
VocaLink services index dropped
for the second consecutive month
to 0.7% in January
• The VocaLink public sector index
edged up slightly, with annual
growth of 1.3% over the three
months to January.
2 Take Home Pay Index
5%
4%
3%
2%
1%
0%
-1%
Feb 10
Mar 10
Jun 10
Jul 10
Aug 10
Jan 10
Apr 10
May 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
VocaLink FTSE 350 Take Home Pay Index
Chart 1 – VocaLink FTSE 350 Take above the lowest ever recorded because they could not find full-time
Home Pay Index, annual change, figure. This suggests that the employment, compared to a figure
three month moving average weakness in the service sector, as of 10.1% two years ago.
highlighted by the preliminary
This month’s data released by Annual inflation on the consumer
estimate for GDP growth (which
VocaLink show a continued easing in price index rose sharply to 3.7% in
estimated that the sector contracted
the annual rate of growth in take December, from 3.3% in November.
by 0.5% in Q4 2010 quarter-on-
home pay for the UK’s private sector Combined with weak increases in
quarter), is having a downward
over the three months to January. take home pay growth, this is
impact on take home pay growth.
The trend follows a similar pattern to continuing to put downward
the three months to December, The weakening of the labour market pressure on household budgets.
where annual private sector take in recent months will also be having
With the slack in the labour market
home pay growth also eased. With a downward impact on take home
likely to remain in place over the
the preliminary estimate of GDP pay growth. Unemployment on the
coming months as the economy
growth for Q4 2010 suggesting the International Labour Organisation
gradually recovers, increases in take
UK economy contracted by 0.5% (ILO) measure rose to 7.9% over the
home pay should be below long
quarter-on-quarter, this month’s three months to November, from
term average trends. Although weak
VocaLink data provides further 7.7% the previous quarter. Over the
take home pay growth will help to
support to the view that the UK same period the employment rate
keep inflation in check, external
recovery faces significant headwinds fell to 70.4%, from 70.7%. There was
factors such as the price of oil (which
entering 2011. further evidence of the slack in the
broke $100 a barrel again this week)
labour market, with the volume of
At 0.6%, three month annual growth and the change in VAT to 20%, will
part-time workers increasing by 3.0%
on the VocaLink FTSE 350 index, keep annual consumer price inflation
year-on-year, compared to a 0.2%
which is a measure of private sector growth above take home pay growth
decrease in full-time employment.
earnings, fell to its lowest level since in 2011. As such 2011 will be a tough
When asked, 15.0% of those working
June last year. Growth on the index year for the consumer.
part-time said they were doing so
currently sits 0.1 percentage points
Take Home Pay Index 3
5%
4%
3%
2%
1%
0%
-1%
Jan 10
Feb 10
Mar 10
Jun 10
Jul 10
Aug 10
Apr 10
May 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
VocaLink Manufacturing average salary index
VocaLink Services average salary index
VocaLink Public Sector average salary index
Chart 2 – VocaLink Take Home Pay combined with the weak GDP data commodities, particularly oil, which
Services and Manufacturing indices, for Q4 2010, casts a shadow over its broke the $100 a barrel mark this
annual change, three month moving ability to do so. week for the first time in two years.
average With input prices (i.e. business costs)
The weakness in the manufacturing
rising significantly, firms in the
This month’s VocaLink data shows a index, where annual take home pay
manufacturing sector may be
marked downturn in the service growth remained at the lowest ever
looking closely at other areas to
sector sub-index. Over the three recorded figure of 0.4%, is a little
reduce expenditure (i.e. wages and
months to January take home pay more surprising given the sectors
salaries). With plenty of people still
growth in the service sector resilience in 2010 and early 2011.
on the dole queues in the UK,
increased by 0.7% year-on-year, a Indeed, January’s Purchasing
pressure to increase wages and
decline from 1.2% last month and Managers Index data for the sector
salaries remains muted.
1.7% in November, and significantly showed an increase in the index of
below pre-recession trends. The 3.3 points to 62.0. This represents Annual growth on the VocaLink
private services sector accounts for the fastest rate of expansion in the public sector index edged up over
approximately 65% of employment manufacturing sector ever recorded the three months to January to 1.3%
in the UK. As such, the ability of the on this index. from 1.1% in December. We expect
sector to soak up the job losses from annual public sector take home pay
One explanation for the sluggish
the public sector is paramount for growth to fall by mid-2011, due to
growth in manufacturing take home
ensuring the UK recovery remains on the public sector wage freeze to be
pay, despite growth in output, is the
track when the fiscal austerity introduced in the 2011/12 financial
VAT rise to 20% in January and
measures begin in earnest in 2011. year. This month’s rise, therefore, is
elevated prices of global
This month’s VocaLink data, only likely to be temporary.
4 Take Home Pay Index
The economic context
Wage growth is an important determining the prices charged by accounts and shows the additional
economic indicator and helps to companies. Wages are considered to money people have to spend each
guide policy decisions by the be an even more significant driver of month. Other factors which affect
Treasury and the Bank of England. inflation than the strength of sterling, spending behaviour include the level
Specifically, the areas of the oil or other commodity prices. of consumer borrowing, savings and
economy that are most directly changes in property prices.
Movements in consumer spending/
affected by wages are inflation,
retail sales are also linked to Trends in wages therefore have a
consumer spending and, in turn,
fluctuations in wages. The VocaLink major impact on the Bank of England
interest rates. Wages account for
Take Home Pay Index tracks the Monetary Policy Committee interest
approximately 60% of business costs
amount paid into employee bank rate decisions.
and are the most important factor in
Summary of latest economic data, year on year growth rates,
per cent
Previous data Latest data Trend over last
(month) (month) six months
VocaLink FTSE 350
Take Home Pay Index
1.1 (Dec) 0.6 (Jan) ▼
VocaLink Public Sector
Take Home Pay Index
1.1 (Dec) 1.3 (Jan) s
Private sector average
weekly earnings
(including bonuses)
2.0 (Oct) 1.9 (Nov) ▼
Private sector average
earnings index 2.2 (Oct) 2.2 (Nov) —
(excluding bonuses)
Consumer price inflation 3.3 (Nov) 3.7 (Dec) s
Value of retail sales 2.9 (Nov) 3.0 (Dec) s
Bank of England base rate 0.5 (Dec) 0.5 (Jan) —
Key: Arrows slight denote trend in six month movements, dashes represent no clear trend.
Note: Figures are expressed as three month moving average, with the exception of consumer price inflation and
Bank of England base rates.
Take Home Pay Index 5
Wages
Labour market recovery continues The slack in the labour market that The weakness of the labour market
to lose momentum built up during the recession seems and increasing slack puts downward
Labour market data released over to be continuing to grow. The pressure on wages and salaries
the last month by the Office for volume of part-time workers through increased competition
National Statistics (ONS) showed increasing by 3.0% year-on-year, among workers for jobs, thus
continued deterioration in labour compared to a 0.2% decrease in lowering the wages rates they are
market conditions. Unemployment full-time employment. Of those willing to accept. With the recovery
on the International Labour working part-time, 15.0% said they only expected to gather momentum
Organisation (ILO) measure edged were doing so because they could slowly in 2011, labour market
up to 7.9% over the three months to not find full-time employment, conditions are not expected to
November, compared to 7.7% the compared to a figure of 10.1% two improve significantly, making only
previous quarter. The rate of years ago. modest annual increases in take
employment also fell to 70.4% over home pay likely.
the three months to November, from
70.7% the previous quarter.
6 Take Home Pay Index
5%
4%
3%
2%
1%
0%
-1%
Feb 10
Mar 10
Jun 10
Jul 10
Aug 10
Jan 10
Apr 10
May 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
VocaLink FTSE 350 Take Home Pay Index
Average weekly earnings (AWE) – private sector (total pay)
Average weekly earnings (AWE) – private sector (regular pay)
Chart 3 – VocaLink FTSE 350 Take earnings growth has remained charge. The Bank of England states
Home Pay Index against private structurally higher than growth on that wage growth of 4.5% is
sector Average Weekly Earnings, the timelier VocaLink indices over consistent with future inflation being
annual change, three month moving the past year, both have followed in line with their 2.0% target. With
average similar trends. As such, given the wage growth currently significantly
recent weakening in the VocaLink below this level, it is highly unlikely
According to the ONS, annual
statistics, it is likely that the ONS that inflation is currently being
growth in average weekly earnings
figures will follow suit over the next driven by rising labour costs. The key
(excluding bonuses) remained flat
two months. drivers of inflation at present are
over the three months to November
rising indirect taxes (such as Value
at 2.3%. Similarly in the private Wage inflation feeds into the Bank of
Added Tax) and supply shocks (such
sector average weekly earnings England’s consumer price inflation
as adverse global weather
stayed at 2.2% over the same period. target by affecting business costs,
conditions) which are pushing up the
Although annual average weekly which in turn affect the prices they
price of commodities.
Take Home Pay Index 7
Inf lation
UK recovery under threat from Recent data has suggested that The rise in the cost of essential
reduced real disposable income inflationary pressure in the pipeline goods and services is not being
On the consumer price index annual have grown in January. Purchasing offset by a significant rise in take
inflation was 3.7% in December, Manager Index (PMI) figures for the home pay. As a result households
slightly up from 3.2% in November. manufacturing sector in January are finding their level of real
This marks an entire year in which show input prices (i.e. business disposable income is being eroded.
the headline rate of inflation has costs) rising significantly. The index
been above or equal to the upper rose to 84.9 in January, suggesting
bound of the Bank of England’s that input prices are rising at their
target rate. fastest pace since 1992. This will
have an impact on consumer price
index inflation over the next few
months, as these price pressures
feed into consumer prices.
Chart 4 – VocaLink FTSE 350 Take
Home Pay Index against consumer
price index, annual change
5%
4%
3%
2%
1%
0%
-1%
Feb 10
Mar 10
Jun 10
Jul 10
Aug 10
Jan 11
Jan 10
Apr 10
May 10
Sep 10
Oct 10
Nov 10
Dec 10
VocaLink FTSE 350 Take Home Pay Index
Consumer price index
8 Take Home Pay Index
Retail and consumer spending
Retail spending remains robust In December, the annual increase in
Data released by the ONS showed the volume of retail sales edged up
the volume of retail sales increased to 1.5% from 1.4% the previous
by 1.5% over the three months to month. Over the course of the next
December year-on-year. For eleven month, however, given the decline in
months of 2010 annual growth in the take home pay growth, we would
volume of retail sales outstripped expect the annual increase in the
FTSE 350 take home pay increases. volume of retail sales to reduce.
This suggests that households were
maintaining their lifestyle by
spending their savings. This
becomes less of an option the longer
that take home pay growth remains
below inflation
Chart 5 – VocaLink FTSE 350 Take
Home Pay Index against value of
retail sales, annual change, three
month moving average
5%
4%
3%
2%
1%
0%
-1%
Jan 10
Feb 10
Mar 10
Jun 10
Jul 10
Aug 10
Apr 10
May 10
Sep 10
Oct 10
Nov 10
Dec 10
Jan 11
VocaLink FTSE 350 Take Home Pay Index
Value of retail sales (all retailing) current prices NSA
Take Home Pay Index 9
Methodological notes
The average payment per employee The VocaLink Take Home Pay Index For further information, please
is estimated from the total value of is based on take home pay data. It is contact:
payments and the number of therefore affected by changes in tax Deborah Souter, VocaLink Limited
transactions and then expressed as rates, changes in National Insurance 0870 920 8651 or deborah.souter@
an index for each month. The data contribution rates and changes in vocalink.com
use a 3-month moving average to other employer payments or
Richard Janes, Hotwire
mitigate seasonal variations and deductions. As a result it is a more
0207 608 2500 or vocalinkuk@
looks at the year-on-year increase to representative indicator of
hotwirepr.com
provide a fair economic indicator disposable income for salary earners
that is comparable with other data. than data that does not take this into If you would like to receive the
account. monthly press release please email
While the VocaLink series are largely
vocalink@hotwirepr.com or deborah.
representative of the corporate and The VocaLink services and
souter@vocalink.com
public sector economy in the UK, manufacturing indices are compiled
when comparing the VocaLink Take from the FTSE 350 dataset. As such,
Home Pay series data with, for these indices should be interpreted
example, government statistics, it is as sub-sets of the FTSE 350 index.
important to take into account the Comparison between the VocaLink
fact that some trends, which affect manufacturing and services indices
relatively larger firms or certain and other data on these sectors
government institutions, may have a should be cognisant of the fact that
disproportionate impact on the factors effecting FTSE 350 firms will
VocaLink Take Home Pay Index have a larger impact on the Vocalink
compared with the government’s indices than measures looking at the
official Average Weekly Earnings sectors as a whole. This is one
data (AWE). possible explanation of differences
between the Office for National
Statistics average weekly earnings
data and the VocaLink take home
pay series.
10 Take Home Pay Index
About VocaLink About cebr
VocaLink is a specialist payments For example, our Real-time Centre for Economics and Business
partner to banks, their corporate Payments Platform is the central Research ltd (Cebr) is an
customers and government infrastructure for the UK’s Faster independent consultancy with a
departments. Payments Service, whilst we are reputation for sound business
working with BGC, Sweden’s leading advice based on thorough and
We design and deliver smarter
payments provider, to provide insightful research.
domestic and international
outsourced processing for the
automated payments systems, and Since 1992, Cebr has been at the
majority of Sweden’s domestic
smarter ATM switching solutions. forefront of business and public
payments.
interest research. Providing analysis,
In fact, our switching platform
We are very proud of our service forecasts and strategic advice to
connects over 60,000 ATMs, the
delivery record. Our platforms major UK and multinational
world’s busiest network, while our
operate on never-fail technology to companies, financial institutions,
payments platform processes over
ensure total reliability and government departments and
500 million payments per month.
availability 24 hours a day allowing agencies, trade bodies and the
Having pioneered electronic us to meet our customer needs. European Commission.
payments for over 40 years it’s
In short, our smarter payments Cebr is recognised as one of the
perhaps no surprise that many major
capabilities offer banks, corporates country’s leading independent
organisations have come to rely on
and government departments reach commentators on economics and
our services.
throughout SEPA and beyond. business trends. Its forecasts are
used by a diverse audience of
Please visit www.vocalink.com for
business people, policy makers and
more information
journalists; even the Treasury
publishes its predictions for the UK
economy.
Take Home Pay Index 11
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