CPI versus AEI versus Living Wage - which Index?

I was in conversation a few days ago with a practice who had decided to give all their PAYE team members a 4% pay rise, "because that was inflation for the last 12 months".

I wanted to check the authenticity of that statement.

So - to be precise:

• The Consumer Prices Index (CPI) including owner occupiers' housing costs (CPIH) rose by 4.2% in the 12 months to January 2024, the same rate as in December 2023.

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/january2024

• The Average Earnings Index (AEI) for the same period indicates a 5.6% increase across a sample of illustrative jobs.

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours

• The Government has announced National Minimum Wage rates from 1 April 2024, including the National Living Wage, ahead of the Autumn Statement. National Living Wage (NLW) will rise by 9.8% from £10.42 to £11.44, an increase of £1.02

https://www.gov.uk/government/publications/minimum-wage-rates-for-2024

And, of course, that increase in the "Living Wage" has created upward ripples of expectation throughout the general workforce.

I've mentioned before in this blog that my enlightened employer back in the early 1980's (Hambro Life Assurance) had an annual pay review (January 1st) that followed these steps:

1. Everybody had their basic adjusted by reference to AEI over the previous year - that was automatic;

2. Then individuals were assessed by reference to the A.S.K. formula - attitude, skill and knowledge - I explain these in reverse order;

   1. Knowledge - have you acquired any new training?

   2. Skill - have you become better at what you do or taken on more responsibility?

   3. Attitude - when you show up - does the room light up?

The fact that we were given the AEI adjustment reassured us that we were always going to be treated fairly - the rest was based on merit - fair enough.

Very different from the "I could get more stacking shelves at Lidl" mentality.

All Employers need an annual review system, to stop the bickering.

(I'm always asked - back at Hambro - if they wanted to headhunt someone and pay more than average mid-year, how did that work? The answer is that the headhunted candidate would be told that any "extra" paid to induce them would then mean a wait until the rest of the team caught up. before their next review. It worked.)