Scotland has overturned English ‘pay premium’

Further employment gains and stronger productivity growth needed to maintain this advantage

Scotland has overturned England’s longstanding ‘pay premium’, according to new analysis published today by the independent think-tank the Resolution Foundation.

The Foundation’s analysis, part of a major report The State of Working Scotland which will be published later this week, shows that in 2004 typical hourly pay in Scotland was 7.2 per cent lower than in England. However, strong wage growth in the mid-2000s reduced the gap to just 2.9 per cent by 2009 – the year real earnings peaked, before falling throughout the UK.

Scotland’s relatively shallow pay squeeze compared to the rest of the UK following the crash, reduced the gap further still. Typical pay in Scotland is now – at £11.92 an hour – marginally higher than England (£11.84) for the first time since records began.

The analysis shows that pay in Scotland has grown faster than any other nation or region in the UK over the last two decades (the North East experienced the second fastest wage growth). Earnings growth in Scotland has also been stronger than England across all pay levels, other than for those at the very top.

The Foundation notes that steady growth, high employment and improved productivity in the early and mid-2000s were likely to be the driver of Scotland’s strong pay performance pre-crisis. The country subsequently experienced a shallower pay squeeze than the rest of the UK in the aftermath of the financial crisis, though this came at the expense of sharper employment falls.

Coming out of the downturn, RF says that a return to strong jobs growth will be essential in order to maintain Scotland’s pay advantage over England, and that action to boost employment should be a key issue in the upcoming Holyrood election.

The Foundation adds that despite its impressive recent record on wages, Scotland still has a significant low pay problem, with around one in five workers across the country currently earning below the low pay threshold.

While the new higher minimum wage for the over 25s, which comes into effect this April, is set to help around half a million workers across Scotland, the Foundation estimates that around one in six workers across Scotland are still set to be low paid in 2020.

This, says the Foundation, reinforces for the need for a wider low pay strategy that includes, for example, moves to boost coverage of the higher voluntary living wage.

Conor D’Arcy, Policy Analyst at the Resolution Foundation, said:
“As recently as a decade ago, typical workers in England earned significantly more than their counterparts in Scotland. But years of stronger pay growth in Scotland means that the English pay premium has now become Scottish pay premium for the first time ever.

“Scotland’s impressive pay performance has been underpinned by high employment and steady economic growth, particularly in the run up to the crash. But its recent employment and growth record has been less impressive.

“While Scotland’s strong pay growth has been good news for many workers, it is still the case that one in five employees are low paid. With the higher minimum wage for the over 25s expected to reduce rather than eliminate low pay, tackling this longstanding problem should be a top priority for parties in the run-up to May’s election.”