A worker earns £2,000 a month. This year the boss gives a 5% rise. The payslip, the slip of paper that shows the pay, now says £2,100. That is £100 more every month.
£2,100A month's pay, after the rise
vsvs
£2,140Last year's £2,000 of shopping now costs
In the same year prices rose 7%. The shopping that cost £2,000 last year now costs £2,140. The payslip says £2,100. So a month's pay buys a little less than it did, even after the rise.
Your pay rose5%
Prices rose7%
Your pay rose 5%. Prices rose 7%. Compared with last year, a month's pay buys…
About 2% less.
Right. The payslip has 5% more pounds. Each pound buys 7% less. The second effect is bigger, so a month's pay buys about 2% less shopping.
5% more. That is the rise.
Not yet. Five per cent more pounds. The shop wants 7% more of them for the same basket, so the basket now takes more of the pay than it did.
The same. Pay follows prices.
Not yet. Over long stretches it tends to. In this year it did not, and this year is the one on the payslip.
Pay rose5%
Prices rose7%
The real rise−2%
This is the same gap as savings, one lesson back. Take the price rise off the pay rise. What is left is the real rise. Five minus seven is minus two. The payslip went up 5%. The shopping it buys went down about 2%.
Real rise, or only a bigger number?
One card at a time. Tap the pile it belongs to.
Card 1 of 6
Pay +4%, prices +2%
Pay +10%, prices +11%
Pay +0%, prices −1%
Pay +3%, prices +3%
Pay +8%, prices +8%
Pay +2%, prices +5%
Pay +4%, prices +2% → Buys more
Not yet. This buys more. Four minus two is plus two, so the pay grew faster than the prices.
Pay +10%, prices +11% → Buys less
Not yet. This buys less. Ten minus eleven is minus one. A big rise is still a cut when prices rose more.
Pay +0%, prices −1% → Buys more
Not yet. This buys more. Zero minus minus one is plus one. Pay stood still, but everything got a little cheaper.
Pay +3%, prices +3% → Buys the same
Not yet. This buys the same. Three minus three is zero, so the bigger payslip buys exactly the old shopping.
Pay +8%, prices +8% → Buys the same
Not yet. This buys the same. Eight minus eight is zero. The numbers are bigger, and the shopping is not.
Pay +2%, prices +5% → Buys less
Not yet. This buys less. Two minus five is minus three, so the shopping shrank even though the pay went up.
Pay rose bythis much
vsvs
Prices rose bythat much
Take the second off the first. What is left is the real rise, and it can be below zero.Right. The size of the rise never decides it. A pay freeze, no rise at all, in a year of falling prices is a real rise, and a 10% rise in an 11% year is a cut.
Pay after ten years£134
Cost 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?
baskets
Right. 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.
Pay after five years£134
Cost of the same shopping after five years£154
Both started at £100.
Over several years the gap stacks up, like everything else in this chapter. Pay up 6% a year and prices up 9% a year, for five years. Every £100 of pay grows to £134. The shopping it bought now costs £154. A month's pay buys 13% less than it did.
A month's pay that buys £100 of shopping today. Set how fast pay rises and how fast prices rise, over five years.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 0% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 0% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 0% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 0% · Prices rise by: 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.
£0£65£130
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 3% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 3% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 3% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 3% · Prices rise by: 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.
£0£75£150
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 6% · Prices rise by: 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.
£0£65£129
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 6% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 6% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 6% · Prices rise by: 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.
£0£86£172
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 9% · Prices rise by: 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.
£0£74£149
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 9% · Prices rise by: 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.
£0£64£129
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 9% · Prices rise by: 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.
£0£56£112
Year 0Year 5
What a month's pay buys, measured in year-one shopping.
Your pay rises by: 9% · Prices rise by: 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?
Always. Six per cent a year is a good rise.
Not yet. Good compared with what? Against 9% prices, five years of 6% rises left the month's pay buying 13% less.
Only when prices rose by less than 6%.
Right. Six per cent against 3% climbs. Six against six is flat. Six against nine falls. The number on the payslip does not decide it. The gap does.
Only when prices rose by exactly 6%.
Not yet. That is the line where nothing changes at all: five years of rises and the same shopping. Better off starts above that line, not on it.
Move both controls.
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 where you think the answer is, then press Lock. Nothing is scored.
12
your guess · £1,800
the answer · £1,945
£1,800£2,050£2,300
1Pay in 2021£2,000
2Pay in 2022£2,120
Your guess: —
Below where they started. The £2,120 of 2022 bought what £1,945 bought in 2021. It was the biggest pay rise in years, and the worker could buy less than the year before. Most guesses land near £2,120, because that is the number printed on the payslip.
Pay, year one4%
Prices, year one5%
Pay, year two4%
Prices, year two4%
Pay, year three4%
Prices, year three3%
A workers' union wins a 4% pay rise 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.
Behind. Prices won the first year and pay never caught up.
Not yet. 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.
Ahead. Twelve per cent is well above 3%.
Not yet. 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%.
About level. Pay rose 12.5% and prices rose 12.5%.
Right. 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 out, and a month's pay buys what it did at the start.
Lesson complete
A pay rise is only a rise once prices have been taken off it.