The 2020s have been pretty grim so far for British businesses, and by extension their Human Resources (HR) professionals also, says Steve Herbert.
So, when will things improve?
The recent past
Before we look ahead, we first need to look back at the last three years.
Since the start of the decade UK employers have endured a pandemic, multiple lockdowns, broken (or at least interrupted) supply lines, the realities of Brexit, candidate shortages, a European war, and that ill-fated “mini” Budget.
All of these issues have proved problematic for businesses and employers in many different ways, and all have also contributed in some form to the latest business challenge – that of the highest level of domestic inflation experienced for several decades.
High inflation is of course problematic for businesses on many levels, but the key focus for HR professionals should perhaps be its impact on the health and productivity of their workforce.
The cost-of-living crisis and your employees
From a wellbeing perspective, poor finances can lead to problems in physical and mental health.
A recent survey by the Office for National Statistics (ONS) suggested that 9 percent of adults surveyed had “often or sometimes” run out of food over the winter – with 13 percent skipping meals altogether – because they didn’t have enough money to buy food. The implications for reduced physical wellbeing are fairly obvious here.
The same survey also highlighted that more than a third (34%) of those in the survey agreed that the cost-of-living crisis had negatively affected their mental health.
And poor financial health can also have implications for business productivity. A report published by the Financial Inclusion Alliance in early 2020 found that financially stressed employees are:
- 5 x more likely to have troubled work relationships
- 6 x more likely to produce poor-quality work
- 7 x more likely not to finish their daily tasks
It will be apparent to the reader that poor financial wellbeing can lead to physical and mental ill health and is likewise bad for employee engagement and employer productivity. But how long will these cost-of-living challenges last?
The economic outlook?
To understand this, we need to look at the wider economic outlook.
In late January the International Monetary Fund (IMF) suggested that the UK economy would shrink by 0.6 percent in 2023, more than any other nation in the G20 (including heavily sanctioned Russia). This was deeply concerning.
Yet from the low base of that gloomy IMF forecast, there have been a series of somewhat improved economic announcements.
The Bank of England changed their forecasts from a potential two-year recession (predicted as recently as November 2022) to a prediction of a one-year downturn in February.
The ONS then suggested that the UK managed to avoid a technical recession in 2022 (albeit by the narrowest of margins), and the latest ONS figures show the UK economy flatlining rather than actively getting smaller.
And whilst interest rates – and associated borrowing costs for those with credit card debt and mortgages – have continued to rise, it appears that we are now nearing the peak of those increases.
The above represents a series of small – but significant – improvements to the UK’s economic position. Admittedly it’s a case of a glass half-full rather than a glass half-empty, but a little optimism is welcome after the last few months.
Inflation?
But what about inflation, something that has dominated the national headlines for the last eighteen months? The headline rate of inflation is the Consumer Prices Index (CPI) measured over 12 months. The energy price spike experienced at the start of the Russia/ Ukraine war is now over a year old, so that spike in costs will soon drop out of the annual CPI figures. This is why inflation is expected to rapidly drop in the UK.
This is undeniably good news, yet it would be a mistake to think that a reduction in CPI means a reduction in the prices of retail goods. CPI of, say, 6 percent, is better than 10 percent, but still means prices are rising at 6 percent a year. So, we are now entering a period of disinflation, where prices continue to rise, just at a slower pace than seen in 2022.
It should also be noted that although energy prices are expected to drop sharply in July, those are still likely to be at twice the level seen in April 2021. Government support towards energy costs ceased for most employees in March this year, so these costs will now have to be met in full by households.
Other household costs
It is also worth noting that 1 April 2023 was also the trigger point for another significant round of cost increases for households and your employees. Council tax, water bills, mobile phone, and broadband costs are all increasing – sometimes significantly.
Last – but certainly not least – many employees will face hugely increased mortgage bills if their current fixed-rate deal expires in 2023. According to this BBC news item, an average two-year fixed deal was 2.29 percent in November 2021, and is now 5.32 percent. This represents a potential difference of hundreds of pounds each month in repayments for a typical borrower.
The outlook and your employees
So where does that leave us?
Thanks to a combination of factors the overall economic outlook for the nation looks better than it has for some time. This is very welcome.
Yet the reality is that the cost-of-living and cost-of-borrowing pressures on your employees won’t be easing – and may be getting a little worse – throughout much of 2023.
So, HR experts should still be focussing on what they can do to help their employees through this very challenging period. Whilst inflation-matching pay awards would be welcome, the economic reality is that few businesses can deliver that outcome. So, the solution may have to be a series of smaller – yet meaningful – changes to help your workforce.
Areas to focus on include flexibility in workplace location, free parking on site (where possible), weekly rather than monthly expenses, savings clubs, salary sacrifice schemes, employee discount arrangements, debt counselling, and (of course) education and practical self-help tools to enable employees to take control of their finances throughout the cost-of-living crisis and beyond.
The reality is that the cost-of-living crisis remains with us all in the UK, and the savvy HR department will continue to do what it can to seek out and deploy tools that will help their workforce and their employer through these difficult economic times and beyond.
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Steve Herbert is Wellbeing & Benefits Director for Partners&.
Steve Herbert is an award-winning commentator on Human Resources (HR), economic, employee benefits, financial wellbeing, and pension issues.
In June 2022 he joined national risk consultancy and intermediary Partners& as Wellbeing & Benefits Director.
Steve is a regular and sought-after speaker at events, with a unique and engaging delivery style that aims to demystify and explain complex issues to his audience.
He is occasionally accused of making Employee Benefits interesting.
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