All employees are facing increased living costs in 2022, but it may be even worse for lower-paid workers – our popular columnist, Steve Herbert considers how Employers can support their lowest paid employees through what could be an incredibly tough year.
The cost of living looks set to be a major headwind for employers and employees in 2022.
This is a topic I have written about before in my regular Employer News column, yet the challenges of this situation are now becoming increasingly apparent. And a combination of issues, including the freezing of tax thresholds, the introduction of a new taxation levy, the energy price cap, and rising inflation all look set to make this a difficult year for personal finances.
Indeed think-tank, The Resolution Foundation, recently concluded 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.”
Inflation figures
This picture is not helped by the official inflation statistics published last week. UK inflation is now 5.4%, an almost 30 year high. And there are expectations that 6% will be reached by April.
It’s also important to note that the official measure now used to measure inflation is the Consumer Prices Index (CPI), which takes no account of housing costs. Whereas the old (and still more familiar to many) Retail Prices Index (RPI) also includes mortgage interest payments, and is much higher still at 7.5%.
So we are all paying more than we were this time last year. Yet both CPI and RPI are potentially blunt instruments to truly assess the impact of price rises. And in particular they really don’t allow for the greater challenges that some household budgets are now likely to experience.
The poverty penalty
For it has long been known that those on lower incomes face even greater financial problems when prices are increasing. This has become known as the poverty penalty, and is described by Wikipedia as:
“the phenomenon that poor people tend to pay more to eat, buy, and borrow than the rich.”
So why is this?
There are many drivers behind the poverty penalty. One of the best known are those (generally more-expensive) “pre-payment” meters for home energy consumption. Pre-payment is often the only option for customers who are not able to access credit energy tariffs.
Food prices
But the poverty penalty is a bigger issue than just energy prices or the availability of credit.
Better-off families may be able to reduce their weekly spending to combat food inflation by switching from premium brands to “own” or “value” brands during their regular supermarket shop. Yet that flexibility is clearly not available to those that are forced by financial necessity to already buy from a value brand range.
This situation leaves such households extremely exposed to increases on everyday essentials.
Jack Monroe is a well-known budget food chef, author, and anti-poverty campaigner, and regularly checks prices on the supermarket value ranges which she uses as the base for so many of her recipes. Monroe posted a Twitter thread last week (which at the time of writing has had more than 15 million views) regarding the increase in value range prices at her local supermarket.
Increases she identified include:
- Baked beans (+45%)
- Canned spaghetti (+169%)
- Bread (+29%)
- Curry sauce (+196%)
- Small apples (+51%)
- Peanut butter (+142%)
These are clearly many times higher than the headline levels of CPI or RPI inflation, and will be most damaging to those households with limited spending power.
Why this matters to employers?
While this might seem like a much bigger problem for the employee than the employer, the truth is that money worries distract employees and can even lead to poor health too. Either outcome can lower productivity at a time when employers are desperate to return to pre-pandemic business plans and profitability.
So it is very much in the employer’s interests to provide support and assistance to financially stressed workers whenever possible.
So how can employers help?
Taking action
In an ideal world an above-inflation pay rise would clearly help many workers, and particularly the low paid. 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.
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 in 2022, and it is in everyone’s interest that employers to take some action to help all their employees understand and manage their finances more effectively.
Steve Herbert is Head of Benefits Strategy at Howden Employee Benefits & Wellbeing