Stagflation is the new fear for the nation and its employers…our popular columnist, Steve Herbert, discusses the challenges for UK employers
After 6 years of Brexit uncertainty and hiatus – and 18 months of pandemic challenges – employers and employees alike might think that they are due a slice of stability and good fortune.
Yet as the nation continues to emerge from restrictions there are new challenges ahead which have the potential to undermine any return to normality and productivity.
Supply chain issues
For in the last few weeks the fragile confidence of the nation has been shaken yet again, but this time not with the health risks* of COVID-19, but instead the more mundane (but really important) concerns of supply and demand.
Last month I charted the challenges of limited candidate supply in the recruitment market. And one of the points I made then was that this lack of suitable job candidates would inevitably cause problems in many sectors, including those not directly impacted by staff shortages. That issue is now far more evident to all, with a wide range of businesses struggling to source key components to fulfil orders, whilst many shopping trolleys continue to lack everyday household staples too.
Indeed a very public supply issue has dominated the media headlines in recent weeks. The petrol crisis has resulted in much lost time, many frayed tempers, and most importantly huge inconvenience to employees and employers just as the nation collectively began its return to the physical workplace in earnest.
But lost time is only part of the issue.
Basic economic theory dictates that when there is a scarcity of any given product (in this case petrol) and an increased demand for that item, then prices will be liable to increase. That is happening for motoring fuel and indeed in a number of other product areas too.
And finally there is the ongoing issue of energy costs for houses and business to consider. The price of gas has increased rapidly during the current year, and by an astonishing 70% in the month of August alone. This is another major cost challenge, and one that is difficult to mitigate or avoid regardless of whether the consumer is an individual or business.
It’s therefore likely that UK inflation will be increasing in the run up to Christmas. Indeed The Bank Of England is expecting inflation to hit 4% in the next few months.
Income pressures too
And at the other end of the equation there are growing pressures on personal and business incomes too.
Two government funded COVID-19 support policies – the temporary £20 per week uplift to Universal Credit payments and the much used Coronavirus Job Retention Scheme (CJRS) – are being withdrawn this month. Either or both will put a new strain on household budgets.
And from April next year employees and employers face a significant increase in National Insurance contributions too.
So with prices rising and incomes falling there is likely to be a decrease in the discretionary spending power of both individuals and businesses. This is a problem for the UK economy which remains heavily reliant on consumer spending.
A new nightmare?
All of which presents UK employers with a new nightmare to potentially face – that of “Stagflation”.
For those not familiar with the term, I would refer you to this definition from the Cambridge English Dictionary;
“Stagflation (noun); An economic situation where prices keep rising but economic activity does not increase”
Of course there is no guarantee that prices will keep rising, but certainly in the case of oil costs (and by extension petrol prices) the expectation is that they will go higher still before the end of 2021. And since virtually everything in the UK is delivered via the roads network this will add yet further price-pressures to everyday goods.
This all adds to wider concerns about the UK’s economic resurgence, which was already showing signs of stalling even before the supply chain crisis solidified into these latest problems.
What does this mean for Human Resources?
So inflation appears to be on an upwards trajectory and available funds to pay for goods and services potentially heading in the other direction. So what does this mean for employers and Human Resources departments in particular?
HR professionals should firstly recognise that many families will need to earn more just to keep pace with their current financial position. And with so many households in the “just about managing” bracket, the alternative may be borrowing to meet everyday costs, often with no good plan as to how that debt is to be managed or repaid.
It follows that employees may be looking for higher pay settlements from their employers. And given the lack of experienced, qualified, and available job candidates elsewhere at present, employers might not be in a strong position to resist such increased pay demands.
We have a problem
The above scenario is frankly the very last thing employers need right now, particularly as so many organisations need a return to full productivity after 18 months of on-off pandemic restrictions. The situation is not helped by the reality that many employers now have lower financial reserves and reduced income streams as a result of the recent lockdowns.
It follows that finding more money to reward employees will not be an easy option, and potentially a non-starter for some more marginal businesses at this time.
But not providing salary increases also presents the possibility that workers with financial challenges may have little choice by to look elsewhere to obtain that much needed pay rise, taking their skills, qualifications, and experience with them. That is a scenario that few businesses would want to face right now.
So HR professionals should perhaps now focus on the development and communication of some cost-effective employee retention strategies.
I therefore make no apologies for repeating some of the suggestions that I made last month –– which if applied may at least deter some valued employees from departing for a relatively small pay rise elsewhere.
So where to start?
A good initial step would be for Human Resources (HR) departments to remind all line-managers of the business case for good employee retention.
Just as importantly HR departments should aim to equip those line-managers with all the collateral and tools needed to reinforce that retention messages with employees. This should include a reminder of the benefits of continued employment, and an indication as to likely career progression prospects in the future as well.
HR should also help line managers understand (so that they in turn can explain to their workers) the potential risks for an employee in changing employer at this time.
The lessening of some employment rights in the first two years of a new employment is often not widely understood, and is perhaps far more important when the UK still faces the continued threat and uncertainty of another COVID-19 winter ahead.
Valuable Employee Benefits
And likewise a change of employer could result in the loss of cover provided by some really valuable (but often overlooked) Employee Benefits offerings.
The health-crisis of the last year has demonstrated just how important items such as Group Life Assurance, Group Income Protection and Group Private Medical Insurance are in protecting employees and their families, and even a short break in such cover can be rather worrying given the continued global pandemic and other health risks of the moment.
Lastly, but certainly not least, offering some assistance on Financial Wellbeing issues might also help both employer and employee.
Simple yet informative online sessions designed to engage and educate employees on the basics of finance can make a significant difference to how individuals react to financial challenges. In particular a focus on better budgeting and simple strategies to escape excessive debt are likely to be important in the months immediately ahead and beyond.
In conclusion employers and their HR professionals should accept that businesses are currently at the mercy of wider global and market forces. But the simple steps outlined above might go a long way to improving employee retention until that longed for period of commercial normality is finally reached.
Steve Herbert is Head of Benefits Strategy at Howden Employee Benefits & Wellbeing
*although the COVID-19 risks still lurk menacingly just off-stage