Wage inflation for long term business plan

[jmsgld]

Any ideas on what figure should be used for wage (including NI and other staff costs) inflation in a 10 year forecast?

First opinion veterinary if that makes any difference.

The figure suggested is 2% annually, seems low to me...

Many thanks

[UnfortunateUserName]

2% seems to keep you in line with or just ahead of inflation, so if you aren’t factoring in promotions or a highly competitive industry then you should be ok. Lift it to 2.5-3% and run a sensitivity test on your business plan to see how the business would cope under a bit more pressure.

Disclaimer - I’m not an economist and Google is my friend.

[trickywoo]

Although it’s not a national statistic any more the RPI is still calculated and published and tends to be the basis for pay increase negotiations. Quite often it’s higher than the cpi.

Besides pay increases in employers NI seem highly likely as do minimum pension contributions.

[jmsgld]

Yeah, my thoughts are that 2% is on the low side. I just wondered if there was a standard rate used.

All the money that has been spent on Covid has to come from somewhere and I suspect that everything will go up, corp tax, dividend, NI, fuel duty, VAT, income tax etc etc... fun times ahead.

Thanks

[AyBee]

It probably depends what the purpose of the business plan is. I usually see 2%, but perhaps worth sensitising to see what it looks like if you increase to 3% and 4%?

[Countdown]

jmsgld said:

Yeah, my thoughts are that 2% is on the low side. I just wondered if there was a standard rate used.

All the money that has been spent on Covid has to come from somewhere and I suspect that everything will go up, corp tax, dividend, NI, fuel duty, VAT, income tax etc etc... fun times ahead.

Thanks

Our Actuaries use RPI (which i think is going to be the same as CPI(H) soon) to estimate wage inflation. They use it to calculate scheme liabilities.

[jmsgld]

Countdown said:

Our Actuaries use RPI (which i think is going to be the same as CPI(H) soon) to estimate wage inflation. They use it to calculate scheme liabilities.

Many thanks, RPI has been used elsewhere but a flat 2% for wage inflation, the divergence masks a trend that I think is relevant, I just wondered if it were based on something that I do not know about.

[MadProfessor]

We use 3% but during the annual review there's a performance review process so some people get above inflationary awards. So 3% is the long-term, company-wide average.

YMMV