The construction industry and the cost-of-living crisis
24 February 2022
Pay levels in the construction industry often vary widely from one area of expertise to another, yet workers of all grades may soon be feeling the financial pinch as a very real cost-of-living crisis takes hold across the United Kingdom.
So what’s causing this problem, how bad might things get, and why is this a problem for employers too?
The origins of the crisis are many and varied, yet the two key issues are taxation and the cost of both energy and fuel.
In early 2021 Rishi Sunak, the Chancellor of the Exchequer, announced a 5 year freeze on many personal tax thresholds. Later in the year he announced the introduction of the new Health & Social Care Levy (which starts life as a National Insurance increase in April 2022). Both these announcements will place significant pressure on household incomes this year.
And in recent months the wholesale cost of energy has escalated rapidly too. The forecourt prices of petrol and diesel remain near record levels, and the cost of energy for household and workplace usage continues to climb also. It should also be noted that the cost of both fuel and energy also has a knock-on impact to the price of virtually all other goods and services to some extent. Or, to borrow from Sky News’ Ed Conway;
an energy crisis is an everything crisis
Inflation and costs
All of which suggests that inflation will continue to climb in the months ahead. At the time of writing the headline inflation figure (based on the Consumer Prices Index (CPI)) is 5.4%.
Yet many readers of this article will be more familiar with the older measure – the Retail Prices Index (RPI) – which includes mortgage costs and is higher still at 7.1%. This is the highest rate of inflation for some 30 years, and looks set to go higher still in the months ahead. Of course these are only average numbers, and many households with low incomes are facing far bigger increases in their essential everyday spending.
And whilst there is some evidence of increased pay in many sectors – including construction – most pay awards are well below the current level of inflation. So in real terms workers will have less money available for discretionary purchases. Indeed the think-tank The Resolution Foundation conclude that a typical household will experience an income hit of more than £1,000 from April this year.
Is this a problem for employers?
So these are clearly challenging times for household finances. But is this also a problem for employers in the construction sector?
Evidence suggests that employees with money worries are unlikely to be as productive as employers would like. For example, a report published by the Financial Inclusion Alliance in January 2020 suggested that employees with money worries are:
- 5 x more likely to have troubled relationships with colleagues at work
- 6 x more likely to produce substandard quality work than their colleagues.
- 7 x more likely to have lower productivity or not finish their daily tasks than their colleagues
- 8 x more likely to be experiencing sleepless nights that are impacting their state of mind at work and cognitive capacity
These findings could be a problem at any time, but are perhaps far more of an issue as employers in the construction sector look to accelerate away from the challenges of the last two years.
If employees are understandably concerned about their financial position to such an extent that it affects their performance at work then this could very well lead to unforced errors, substandard workmanship or simply a lack of drive to complete tasks on time. All such issues have a knock on effect for the employer and consequently their PI insurers, for example if an un-focussed employee omits a design detail that subsequently causes a project to halt whilst a solution is found, it will very likely lead to claims from third parties for damages and resultant delay costs. This not only has a cost to the employer in terms of the excess under their PI policy but also the potential for increased future PI premiums and damage to reputation.
Ian Chapman, Associate Director, Legal, Technical & Claims, Financial Lines Group
How can employers help?
In an ideal world an above-inflation pay rises would clearly help many workers. Yet many of the same inflation concerns are also posing genuine cash flow and/or profitability problems for employers too.
It follows that lower cost alternative solutions may have to be considered.
A good starting point for employers with limited financial resources might be to formulate a plan that will, at the very least, signpost workers towards some practical support and assistance.
The support offered will vary, but options to consider could include debt counselling services provided by Employee Assistance Plans (EAP), signposting to debt charities, and possibly workplace finance solutions too. And ideally overlaying all of these options should be the availability of financial education sessions, which can be delivered very cost-effectively via pre-recorded video content placed on the employer’s intranet, website, or employee benefits platform.
The reality is that very many construction workers and their households will be feeling the financial pinch this year, and it’s in everyone’s interest for employers to take some action to help their employees – and their organisation – to weather this potentially significant employment issue in 2022 and beyond.
Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. He is occasionally accused of making Employee Benefits interesting.