Britain now ranks fourth in pay, and fifth overall, with pay and benefits averaging £31,700 a year, in a league of national employment costs produced by Mercer Human Resource Consulting, a specialist in employee benefits.

The dollar’s weakness, by contrast, has made it cheaper to hire staff in America than in any northern European country.

But total pay and benefits in the former communist EU accession countries of Eastern Europe are typically only a quarter of those elsewhere in Europe.

Mark Sullivan, worldwide partner at Mercer, said: “There are concerns about whether US companies will continue to invest in the EU. Organisations that do invest are likely to favour Eastern European countries.”

Only Belgium, Sweden, Germany and Luxembourg have higher total employment costs than the UK, mainly because employers there have to pay higher social security taxes. In Britain and Ireland, however, the cost to employers of voluntary benefits, mostly pensions, is higher than anywhere else. Britain heads a second division in which France, Denmark and Japan have similar employment costs of between £31,000 and £32,000 a year at today’s exchange rates.

Worries over the UK’s competitiveness will be fuelled by higher pay increases this year, reflecting an acceleration in the cost of living index driven by housing costs. UK pay settlements have averaged 3.3 per cent on deals recorded by Incomes Data Services, the employment research firm. Most higher settlements, which used to be in the public sector, are now in manufacturing and construction.

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