January is traditionally a dark and unpleasant month, often made even gloomier by poor economic trading figures from that crucial pre-Christmas trading period.
Yet a trawl around the major broadcast media news sites on Friday 5th January finds that the economic news appears better than might be expected given the challenges of the 2020s.
Out of the woods?
Indeed, the business section of the Sky News website included news of record Christmas sales for supermarkets, news of mortgage rates being reduced to below 4% (for some), and the UK service sector experiencing rather unexpected levels of optimism too. And there was even news that the rise in interest rates recently experienced has been a “net positive” for the overall British economy.
These findings – alongside other factors such as the reduction in National Insurance from January, and the third significant rise in the National Living Wage in April – might suggest that employers should lessen their recent focus on the financial wellbeing of their workers. Yet, as ever, the headline averages overlook the financial challenges still facing millions of individual workers.
The reality is that many of the above financial improvements are falling at either end of the income scale.
The high-paid will benefit far more from the reduction in National Insurance than those on middle and low incomes, and those with significant savings and little debt (typically higher-paid and/or older workers) are likely to be the employed grouping that benefits most from higher interest rates (as is shown in this chart from The Resolution Foundation):
At the other end of the income scale the low-paid are set to benefit from another significant hike in the National Living Wage come April. This latest increase of nearly 10% (and 28% over the last three years) will certainly make a significant difference to many of the poorest working families in the United Kingdom.
The squeezed middle
Yet that leaves the millions of workers in the middle of the income spectrum who benefit far less from the measures mentioned, and who are often those shouldering the biggest mortgage burden* since the early 1990s too.
Whilst retail mortgage rates are now falling, they are still far higher than they were just a couple of years ago. This matters, because around half of the UK mortgage book is currently protected by fixed-rate deals secured when The Bank of England base rate was at a 300-year historic low. Many of these deals will end in 2024, leaving those households facing a significant monthly cost shock.
And yes, the inflation rate is now reducing – yet prices are still rising (it is inflation not deflation). It follows that the (admittedly) lower levels of inflation in 2024 will only bake-in the price increases that working families have already absorbed.
Not a new problem
The reality is that millions of workers – and particularly those in the (in)famous “squeezed middle” – will still be struggling financially this year, adding to a problem that has dogged the UK economy for most of this century.
For so-called “real” wages (pay adjusted for inflation) have flatlined in the UK ever since the financial crisis of 2007. This stagnation of income (and by extension living standards) for working people is unprecedented, and can be seen in this chart from The Resolution Foundation below:
Even at the end of the current calendar year real wages are likely to be at a similar level to that seen way back in 2006. This only serves to reinforce the message that the cost-of-living and cost-of-borrowing crisis remains very much “in play” for so many or your employees this year.
So, it may be a mistake for HR professionals to consider workforce financial wellbeing a lesser priority in 2024.
The truth is that the pressures on wellbeing – be that financial, physical, mental, or even social – are now perhaps more intense than they have been for many, many years, and are likely to persist throughout the rest of the decade.
Any, or all, of these issues can impact productivity, so it remains very much in the employer’s interest to support all such concerns robustly and effectively wherever possible.
Steve Herbert is an award-winning HR commentator and Employee Benefits expert.
*Mortgage Burden: The percentage of monthly salary spent on mortgage costs.