By Daniel Hunter

The VocaLink Take Home Pay Index has grown across the private sector to stand at its highest level since August 2011. This growth reflects increases in the manufacturing and services sub-indices, both of which stand at their highest levels for 2012.

However, growth in the VocaLink Public Sector Index continues to slow creating the biggest pay growth gap between private and public sectors workers, favouring private sector workers, since the indices began.

The FTSE 350 Take Home Pay Index shows pay growth of 2.7 percent during the three months to June, up from 2.3 percent in the three months to May. The VocaLink Services Index also continues to grow steadily and now stands at 2.5 percent growth in the three months up to June, up from 2.1 percent in the three months to May, demonstrating the continued positive impact of the increase in the tax-free Personal Allowance limit from this years Budget.

The VocaLink Manufacturing Index continues to show real strength and grew by 0.6 percentage points to stand at 4.5 percent, its highest rate in the last 12 months. Growth in the sector has risen strongly since the start of 2011 due in part to inflation-linked pay settlements in the sector. Research by the Labour Research Department suggests there have been several index-linked deals among transport firms in recent months.

In comparison, however, the VocaLink Public Sector Index has seen growth slow to its lowest levels since the Index began. Ongoing pay freezes have contributed to an Index growth drop to 0.5 percent in the three months to June. Despite benefitting from the higher tax-free personal allowance, underlying earnings growth remains very weak.

“This month’s data goes to show the growing disparity that exists between private and public sector wage growth," David Yates, Chief Executive Officer at VocaLink, said.

"The gap of 2.2 per cent, favouring private sector salaries, is the largest gap recorded on the indices. Not since June 2009 have we witnessed a similar margin, only then it was public sector wage growth outstripping private sector wage growth. What we are witnessing now is the full impact of public sector wage freezes and private sector stimulus.”

Douglas McWilliams, Chief Executive of economics consultancy Cebr, said: “The official rate of consumer price (CPI) inflation stood at 2.8per cent in May, down from 3.0 per cent in April. Overall, the gap between private sector take home pay growth and inflation has narrowed in recent months, meaning that real incomes are starting to stabilise although it may be some time before households see a notable increase in their spending power. Despite the increase in personal allowances, take home pay growth remains below that seen in the 2008/09 tax year. This likely reflects continued high unemployment, which places limits on employee wage bargaining power.”

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