Lesson 07 · 4 min · 6 things to do
Pay against prices
You got a 5% rise this year. Whether that was a rise at all depends on a number your boss never mentioned.
- Your pay rose5%Prices rose7%
Your pay rose 5%. Prices rose 7%. Compared with last year, a month's pay buys…
- Yes.More pounds, each worth less, and the second effect is bigger. The rise was real in pounds and a cut in everything the pounds are for.
- Not quite.Five per cent more pounds. The shop wants 7% more of them for the same basket, so the basket got further away.
- Not quite.Over long stretches it tends to. In this year it did not, and this year is the one on the payslip.
A month's pay that buys £100 of shopping today. Set how fast pay rises and how fast prices rise, over five years.
What a month's pay buys, measured in year-one shopping. 0% · 0%Pay up 0% a year, prices up 0% a year, five years. A month's pay that bought £100 of shopping: It buys exactly what it did.
What a month's pay buys, measured in year-one shopping. 0% · 3%Pay up 0% a year, prices up 3% a year, five years. A month's pay that bought £100 of shopping: It buys what £86.3 bought at the start: less.
What a month's pay buys, measured in year-one shopping. 0% · 6%Pay up 0% a year, prices up 6% a year, five years. A month's pay that bought £100 of shopping: It buys what £74.7 bought at the start: less.
What a month's pay buys, measured in year-one shopping. 0% · 9%Pay up 0% a year, prices up 9% a year, five years. A month's pay that bought £100 of shopping: It buys what £65.0 bought at the start: less.
What a month's pay buys, measured in year-one shopping. 3% · 0%Pay up 3% a year, prices up 0% a year, five years. A month's pay that bought £100 of shopping: It buys what £115.9 bought at the start: more.
What a month's pay buys, measured in year-one shopping. 3% · 3%Pay up 3% a year, prices up 3% a year, five years. A month's pay that bought £100 of shopping: It buys exactly what it did.
What a month's pay buys, measured in year-one shopping. 3% · 6%Pay up 3% a year, prices up 6% a year, five years. A month's pay that bought £100 of shopping: It buys what £86.6 bought at the start: less.
What a month's pay buys, measured in year-one shopping. 3% · 9%Pay up 3% a year, prices up 9% a year, five years. A month's pay that bought £100 of shopping: It buys what £75.3 bought at the start: less.
What a month's pay buys, measured in year-one shopping. 6% · 0%Pay up 6% a year, prices up 0% a year, five years. A month's pay that bought £100 of shopping: It buys what £133.8 bought at the start: more.
What a month's pay buys, measured in year-one shopping. 6% · 3%Pay up 6% a year, prices up 3% a year, five years. A month's pay that bought £100 of shopping: It buys what £115.4 bought at the start: more.
What a month's pay buys, measured in year-one shopping. 6% · 6%Pay up 6% a year, prices up 6% a year, five years. A month's pay that bought £100 of shopping: It buys exactly what it did.
What a month's pay buys, measured in year-one shopping. 6% · 9%Pay up 6% a year, prices up 9% a year, five years. A month's pay that bought £100 of shopping: It buys what £87.0 bought at the start: less.
What a month's pay buys, measured in year-one shopping. 9% · 0%Pay up 9% a year, prices up 0% a year, five years. A month's pay that bought £100 of shopping: It buys what £153.9 bought at the start: more.
What a month's pay buys, measured in year-one shopping. 9% · 3%Pay up 9% a year, prices up 3% a year, five years. A month's pay that bought £100 of shopping: It buys what £132.7 bought at the start: more.
What a month's pay buys, measured in year-one shopping. 9% · 6%Pay up 9% a year, prices up 6% a year, five years. A month's pay that bought £100 of shopping: It buys what £115.0 bought at the start: more.
What a month's pay buys, measured in year-one shopping. 9% · 9%Pay up 9% a year, prices up 9% a year, five years. A month's pay that bought £100 of shopping: It buys exactly what it did.
Your pay rose 6% a year for five years. When did that leave you better off?
- Not quite.Good compared with what? Against 9% prices, five years of 6% rises left the month's pay buying 13% less.
- Yes.Six per cent against 3% climbs. Six against six is flat. Six against nine falls. The number on the payslip is not the answer; the gap is.
- Not quite.That is the line where nothing changes at all: five years of rises and the same trolley. Better off starts above that line, not on it.
Move both controls to see how they work against each other.
- Pay after ten years£134Cost of 100 baskets after ten years£134
Both started at £100. Pay rose 3% a year for ten years and prices rose 3% a year for ten years. A month's pay bought 100 baskets at the start. How many at the end?
basketsYes.Both climbed 34%. Every pound of pay is worth less, and there are more of them by exactly the same amount. Ten years of rises, and the shopping is the same. Real rise, or only a bigger number?
Pay +4%, prices +2%
Pay +10%, prices +11%
Pay +0%, prices −1%
Pay +3%, prices +3%
Pay +8%, prices +8%
Pay +2%, prices +5%
Yes.The size of the rise never decides it. A freeze in a year of falling prices is a real rise, and a 10% rise in an 11% year is a cut.In 2022 UK pay rose about 6% and prices rose about 9%. A worker on £2,000 a month got the 6%. Slide the marker to what their new pay buys, measured in 2021 shopping.
Slide the marker to your guess and lock it. Nothing is scored — the point is to have your own number before you see the real one.
Pay in 2021 · £2,000Pay in 2022 · £2,120you said · £1,800actually · £1,945What it buys, in 2021 shopping: —
Below where they started. £2,120 in 2022 bought what £1,945 bought in 2021: the biggest pay rise in years, and a pay cut in everything it could buy. Most guesses land near the new number, because the new number is the one printed.A pay rise is only a rise once prices have been taken off it. The number on the payslip is pounds. What you keep is the gap.
- Pay, year one4%Prices, year one5%Pay, year two4%Prices, year two4%Pay, year three4%Prices, year three3%
A union wins 4% a year for three years. Prices rise 5%, then 4%, then 3%. At the end, is the worker ahead?
Stack each side's three rises, then compare the totals.
- Yes.Three years of 4% stack to 12.5%. Five, four and three stack to 12.5% as well. A bad first year and a good last one cancelled, and the trolley is where it started.
- Not quite.It did catch up: year two was even and year three pay won by one. The first year's loss was paid back by the third year's gain.
- Not quite.That compares the whole three years of pay with the last year of prices. Prices rose in all three years, and the first of them was 5%.
Lesson complete
A pay rise is only a rise once prices have been taken off it.
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