Why your salary is worth less even after a 3% raise

Imagine you earned £30,000 in 2020 and now earn £32,400 in 2024 — a 8% nominal raise that seems reasonable. But during that period, cumulative inflation in the UK was approximately 20%.

Real salary vs nominal salary

Your nominal salary is the number on your payslip. Your real salary is what you can actually buy with that money, adjusted for inflation.

To maintain your 2020 purchasing power, you would need to earn in 2024:

£30,000 × 1.20 = £36,000

Since you only earn £32,400, in real terms you have lost £3,600 of purchasing power, despite receiving a nominal raise.

The real salary formula

Real salary is calculated as:

Real salary = Nominal salary / CPI × 100

Or to calculate the change between two years:

Real change = ((Salary_end / Salary_start) / (CPI_end / CPI_start) - 1) × 100

Why collective agreements don’t always protect you

Many pay agreements include salary review clauses linked to the CPI. However:

• CPI is published with a delay, so the revision arrives late
• Some agreements use inflation forecasts, which tend to be lower than actual inflation
• Minimum wage increases don’t always cover accumulated inflation

What to do if your salary doesn’t keep up with inflation

1. Negotiate with data: bring the real purchasing power loss calculation to your employer
2. Look for extras: performance bonuses, benefits in kind (meal vouchers, health insurance)
3. Assess the market: inflation also affects the labour market; your market value may have risen more than your salary

Use our real salary calculator to check whether your pay has gained or lost purchasing power over any period.