Long-term solutions rather than the short-term gains from falling oil prices are needed to boost wages, business groups have said.
David Cameron urged businesses to pass on the benefits of falling oil prices to staff through higher wages on his visit to Washington yesterday.
Business groups have responded saying lower oil prices are already creating real wage growth through lower inflation and that businesses, households and the UK economy are all reaping rewards.
However, long-term policies are needed to boost productivity and ensure wages rise sustainably across the board, the Institute of Directors (IoD) and CBI have said.
“As the recovery continues we expect wages to pick up,” said CBI chief John Cridland, “but this will need to go hand in hand with rising productivity. Businesses and the government must do more to ensure growth works for everyone: we need long-term policy solutions geared towards boosting productivity, raising skills levels and ensuring young people don’t fall behind at school.”
While some businesses may choose to translate savings from low oil prices into higher wages, the IoD warned they shouldn't be making long-term decisions on what could be a “temporary blip” of falling oil prices.
“When companies are gifted with a short-term cash boost, there are many options open to them. The Prime Minister is right to point out that lower oil prices will benefit companies. Some businesses will think about raising wages,” said IoD chief economist James Sproule.
“However, for others, the right answer may be to lower prices, bring forward investment, pay off debts, or take on more staff. As recent months have shown, the price of oil is incredibly volatile and unpredictable. Businesses shouldn't be making long-term decisions on the basis of what could be a temporary blip.”
Sproule pointed to a survey of its members in which two-thirds plan to give staff pay rises in-line with, or above, inflation in the coming months as a sign of growing confidence and the improving health of UK business. “It is only through improved productivity that wages can rise in a sustainable fashion over the longer-term,” he added.