Employees and the cost of living

Insight

Published

05 January 2022

As we enter 2022 the national and local headlines are once again dominated by Covid-19 – and in particular the spread of the Omicron variant.  And it is now clear that the next few weeks will pose some unwelcome new challenges for the nation, employees, and employers to navigate.

Yet look beyond the pandemic related headlines and it’s already possible to see another major employment problem just over the horizon.  For the long-trailed cost of living crisis looks set to really bite in April this year.

We last looked at this issue in early November, so what’s changed in the two months since that post?

New & existing issues?

Firstly – and importantly – the rapid resurgence of Covid-19 has probably worsened the financial situation of some households. 

Whilst the government has taken action to provide support to some of those hard pressed sectors (such as hospitality) who have complained of “lockdown by stealth”, that support did not include a repeat of the Coronavirus Job Retention Scheme. 

So many employees will have been working fewer (or no) hours in recent weeks, with little or no compensation for the working hours lost.  And reduced footfall and consumer spending will doubtless have lessened those less regular but still much needed additional income streams such as overtime, bonuses, and customer tips for millions of workers also.

And the passage of time brings several more issues far closer too.  The freezing of tax thresholds, the introduction of a new taxation levy, and the challenges of the energy price cap will all increase household costs.  This has lead the think-tank, The Resolution Foundation, to conclude that;

“the spring looks particularly difficult, with April bringing a broad-based cost of living catastrophe affecting the vast majority of households: soaring energy prices and significant tax rises will see an annual income hit to the typical household of over £1,000.”

It’s also worth keeping in mind that an employee would have to earn far more than the headline cost of £1,000 in gross income (before tax and national insurance is deducted) to meet the suggested average cost increase. 

Incomes

It follows that many employees will be hoping for a significant pay rise to help meet – or at least mitigate – these new and largely unavoidable costs.  Yet the hopes of a “higher wage” economy being spoken about with such enthusiasm last September now also appear to be subsiding.

Indeed the Institute for Fiscal Studies (IFS) stated in their October 2021 post-Budget briefing that by 2026 (the end of the tax threshold freeze period introduced in the March 2021 Budget) that UK workers will have experienced;

“a period of 20 years of virtually no growth in earnings or income”

Of course employees in some sectors have seen noteworthy wage rises in the last year (most notably HGV drivers), and some of those on low incomes will see significant increases dictated by National Minimum Wage and National Living Wage legislation in April also.  Yet even these improvements will probably only just about keep pace with inflationary pressures, and the broader picture suggests that the majority of workers will see household budgets reduce. 

An employer problem too

While this might seem like a much bigger problem for the employee than the employer, the truth is that money worries can also impact performance and productivity.

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 are stark reminders that an employee’s workplace productivity often correlates with their personal wellbeing, and it is therefore evident that it is very much in the employer’s interests to provide support and assistance to financially stressed workers too.

Can employers help?

So how can employers help?

In an ideal world an above-inflation pay rise would clearly help many workers.  Yet realistically few organisations will be well placed to provide such an increase given the currently unstable and uncertain economic environment.

It follows that alternative solutions may have to be considered. 

Taking action

And 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 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 cost-effectively via video conferencing and/or on-demand video content as needed. 

The reality is that very many working 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 workers – and their organisation – to weather this potentially significant employment issue in 2022.

For more information on any of the above topics, please speak to your usual Howden Consultant in the first instance, or visit our website for other contact options.  

Published 05/01/22

Steve Herbert

Steve Herbert

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.

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