There were factors beyond market pressure that drove temporary labour hourly rates to a double-digit increase in 2011. The UK Value Added Tax (VAT), which applies to worker salaries as well as agency profits, increased from 17.5% to 20% in January 2011. Likewise, the employer National Insurance (NI) contribution was increased by 1% of wages in April. As expenses passed through to the end consumer of the agency worker’s labour, the VAT and NI increases went straight to the bottom line cost of a temporary worker in 2011.
The impact of inflation has also diminished so far in 2012. In 2011, the annualised inflation rate exceeded 5% in September and October and averaged 4.4% across the full year.i Inflation pressure began to ease in December and has continued steadily downward through April of this year. The inflation rate has been well below 4% annualised in 2012, reducing yet another pressure that forced hourly rates upward so quickly in 2011.ii
It is also clear that market demand for temporary labour is weaker in 2012 than in 2011. Economic growth in the UK has ceased over the past two quarters, meeting the definition of a renewed recession.iii Permanent hiring has slowed and even temporary assignments and part time positions, which led the UK employment recovery last year, appear to be stalling. The REC/KPMG Report on Jobs showed declining agency billings for temporary labour in March and April 2012.iv
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ii (Office for National Statistics, 2012)
iii (Office for National Statistics, 2012)
iv (KPMG, 2012)