Employers in the UK must find more creative ways to help staff navigate the country’s impending cost of living crisis, experts have said, as war in Ukraine is forecast to contribute further to energy price rises, wider inflation, and lower living standards across Europe.
In an article for Personnel Today, business leaders and psychologists outline the risks to employers of unengaged and distracted workforces and suggest ways to alleviate cost of living concerns for UK workers that don’t necessarily involve salary increases.
The article quotes Dannielle Haig, business psychologist at DH Consulting, who says it’s likely that more workers will develop “financial anxiety and concerns over financial security” amidst economic crises. She adds: “when we feel this way it can overwhelm us psychologically, and that has an obvious impact on other areas of our lives, such as work, where we become disengaged, demotivated and generally exhausted”.
The importance of proper financial education and salary sacrifice schemes for workers is highlighted by Jamie Mackenzie, director at employee engagement platform Sodexo Engage, who adds: “employers should dig deep to ensure their workforce takes the right steps to financially secure their future.”
Meanwhile, Chieu Cao, chief executive at financial wellbeing platform Mintago, says that encouraging staff to make more sensible workplace pensions choices is another obvious way that employers can start helping. “Make information surrounding employee pension schemes more accessible, and changes to pension contributions easier,” she adds.
Inflationary pressures
According to new research from the Resolution Foundation, UK workers are currently heading for the biggest squeeze on their incomes for nearly 40 years, with the war in Ukraine, already-high energy prices and creeping inflation all contributing to a dire economic outlook.
The think tank’s annual Living Standards Outlook for 2022 warns that UK inflation could exceed 8.4% in the early part of the year, with inflation across the 2022-23 financial year potentially reaching 7.6%. This would be significantly higher than the inflation rate forecast by the Bank of England in February, and would represent the highest seen in the UK since 1982, says the report. The result would be real typical household incomes falling by 4% across 2022-23, it claims.
Adam Corlett, the Foundation’s principal economist, warns that lower-and-middle-income families will be hit hardest by the “inflation-driven squeeze”. He has called for the Chancellor Rishi Sunak to look again at boosting working-age benefits and the UK state pension, arguing that the 3.1% uprate planned for April 2022 won’t provide enough protection at a time when inflation could reach 8%. “The immediate priority should be for the Chancellor to revisit benefits uprating in his upcoming Spring Statement,” says Corlett in the report.
“Britain has stepped out of a global pandemic and straight into a cost of living crisis,” he adds. “The tragic conflict in Ukraine is likely to further drive up the price of energy and other goods and worsen the squeeze on incomes that families across Britain are facing.”
Choices for the Chancellor
In his Spring Statement on 23 March 2022, the Chancellor is expected to implement further measures to alleviate living cost pressures and address the economic impact of the war in Ukraine.
In an article for Forbes, authors Laura Howard and Kevin Pratt outline some of the options Rishi Sunak could take to further help struggling households, beyond the £350 energy bills support package the government announced in February. Here are three examples of measures the Chancellor could take:
1) Scrap VAT on domestic energy bills
According to Howard and Pratt, with VAT levied at 5% on domestic energy, scrapping the tax could save typical households as much as £200 a year. “The cut could be targeted at those on lower incomes to avoid the criticism that savings were being offered to those who could afford higher bills” say the authors.
2) Impose a windfall tax on energy companies
This move, suggested by Labour in January this year, would be unpopular with a Conservative Chancellor, the authors suggest. However, they outline the money raised could be used to increase the Warm Home Discount and to better insulate UK homes.
3) Extend the Warm Home Discount
Howard and Pratt say the government should go further than its planned increase of the Discount from £140 to £150 next winter by extending the pool of eligible recipients beyond the current target of three million.