Why you'll earn less in 2011

Robert Powell finds out why your 2011 pay rise is actually a pay cut...

Are you expecting a pay rise in the coming year?

Well if you work in the private sector or earn less than £21K in the public sector, you should be.

Good news, right?

Wrong! Despite predictions of general pay rises throughout 2011, wages will not keep up with rising costs of living. And what’s more, pay freezes in the public sector will see the public-private divide widen even further.

That's according to? a new report published by Income Data Services (IDS) that’s based on 66 pay reviews covering just shy of two million employees.

Let’s take a closer look at the figures...

The stats

The median pay rise increased to 2.2% between September and November last year. It had been stuck at 2% for the majority of 2010 and this increase takes it to its highest level since the recession.

The number of pay freezes has fallen, with just 6% of recorded pay agreements resulting in a freeze. This is the lowest level since the end of 2008.

IDS predict that these pay increases should continue throughout 2011, so long as the economic recovery remains on track. But while this may sound like good news, pay rises do not necessarily translate into more money in your pocket.

This is because the cost of living in the United Kingdom is also rising – and the bad news is that it’s rising faster than wage increases.

Why so pricey?

Pay rises are typically set using the inflation measuring Retail Price Index (RPI). This measure gives an indication of the general increase in the price of goods and services within the United Kingdom.

The RPI did not drop below 3.7% in 2010. In fact, it was above 4% for most of the year with an average rate of 4.7% for the 12 months up to November 2010. And what’s more, latest forecasts from the City predict the RPI will stay well above 4% throughout 2011.

Combine these figures with the recent VAT rise, hikes in petrol prices and increases in energy tariffs and you can see why a measly 2.2% pay rise won't do much to address the pressure on households already struggling to make ends meet.

To read more about how to combat rising petrol costs head to How to beat record petrol prices or get a quote from our Energy Centre to find out if you could be saving money on your electricity and gas bills.

Public vs. private

As you can see, the pay picture is not looking great for any of us, but for public sector workers it’s especially bad.

Pay rises may be increasing overall, but in the public sector they have actually fallen throughout 2010 with a median rise of just 0.75%, compared to a 2% rise within private companies.

Pay freezes for public sector workers earning more than £21,000 will force this divide in pay-scales open even further, as private sector wage increases are expected to rise to a 3% median in the coming year.

IDS have already recorded 10 pay freezes in civil service departments. But in fairness there have also been some relatively large wage increases for public sector employees earning less than £21,000.

Bosses' pay rises by 55%

While employees suffer from stagnant pay rates, bosses look set to trouser huge pay rises in 2011.

The IDS report also shows that the total earnings of FTSE-100 directors increased by a whopping 55% last year.

Compare this to the 2% average rise for employees and it’s no surprise that many are describing these wage gaps as a recipe for “desperately low morale” in companies.

But what can you do if you find yourself struggling to pay rising gas bills, clear that Christmas credit card burden or buy the weekly groceries?

Well, there are two obvious options:

Spend less

Saving money is what we’re all about here at lovemoney.com and we’ve got plenty of articles, guides and online comparison tools to help you trim a few pounds of your outgoings every day.

Our how-to guides will help you save money by setting up a budget, cutting the cost of going out and slashing the price of your food bills.

Or you can read my week-by-week guide to ridding yourself of debt by changing credit cards, current accounts and energy and telecoms providers as well as, of course setting up a budget!

Ensuring you’re always getting the best deal on any insurance policies you have is another easy to way to save money. You can compare home, travel, car and life insurance rates right here at lovemoney.com

Earn more

And I don’t just mean by getting a pay rise, as there are loads of other ways you can earn some extra cash outside of work in the coming year. Read our step-by-step money-making guide for some suggestions.

11 routes to riches in 2011 has some more great tips for earning some extra cash in the next 12 months, as does You’re ignoring free money and 5 ways to profit from your leisure time.

Or if you’re intent on getting that pay rise you deserve then head over to our guide to getting a promotion for some top tips on climbing the work ladder.

More: Now’s the time to get a new job! Job cuts: Where the axe will fall