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Monday, December 27, 2010

Half of businesses to freeze pay in 2011

Half of businesses to freeze pay in 2011 ; More than half of businesses will freeze or reduce pay for their staff next year amid worries about the Government's spending cuts, according to the British Chambers of Commerce (BCC).

Around 49pc of businesses surveyed by the industry group said they are likely to freeze pay, while 6pc plan to cut wages. Only two in five out of the 345 companies surveyed said they were likely to pay bonuses in 2011.

Six in 10 of the companies said they have already cut or frozen wages at some point during the past three years.

"Firms face a number of pressures moving into 2011," said Dr Adam Marshall, director of policy at the BCC. "They have to contend with government spending cuts, increased regulation, and higher taxes thanks to increases in VAT and National Insurance contributions."

George Osborne, the Chancellor of the Exchequer, inherited the biggest budget deficit of any leading economy following the financial crisis that saw Britain bail out Royal Bank of Scotland and HBOS. Mr Osborne is now embarking on Britain's most aggressive post-war fiscal consolidation.

Indeed, in October the new Coalition Government said that £81bn will be cut from public spending over the next four years to ensure economic stability and bring the country back to prosperity.

Just under 40pc of companies said the spending cuts would have an impact on their profitability, with 13pc saying they would probably have to cut jobs.

City analysts reckon many companies that rely on government contracts, such as outsourcing groups, are likely to suffer from the reduction in state spending. Mouchel Group, for example, has come under pressure from its lenders who are concerned how the severe drop in the engineering company's government contracts will affect future cashflow.

Despite the climate of austerity, 45pc of companies said they may be able to increase wages next year.

Dr Marshall pointed out that many businesses said they will deal with reductions in public spending by taking a hit on the bottom line instead of reducing staff numbers.

"This continues a trend we first saw during the recession. Firms are doing whatever they can to retain staff even when conditions are more challenging." Dr Marshall said.
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