The cost-of-living crisis is hitting the UK hard. The current inflation rate is 9.4% — the highest level since 1982 and 3 times higher than the peak rate of the 2008 financial crash. This unprecedented inflation level follows a decades-long wage squeeze; the 2010s had the lowest real wage growth rate in around 200 years.By Nick Gold, MD of Speakers’ Corner
Employees are bearing the brunt of this economic turmoil. People now have less disposable income than they’ve had since the turn of the century. As the cost of living and running a business soars, employers are also facing serious decisions around how to keep pace with inflation.
Education is key to enduring and even thriving in a difficult economy. And it’s not just a case of educating people about money management. In order to protect profits and survive recession, business leaders must understand what people want, and how we can deliver these priorities.
Understanding the impact of the economic climate
For several years now, borrowing rates have been very low. People have become used to this state of the world — it’s been relatively easy to access low-interest loans and mortgages. But now these products are no longer available, and people with variable rate products are seeing their bills skyrocket.
Most businesses have cash reserves that will allow them to stay afloat for at least a few months, even if their income takes a hit. But many individuals don’t have an emergency fund for personal use — and it’s now too late to start saving. High bills and low savings lead to people curbing their spending, which endangers company profits and further shrinks the economy.
The cost-of-living crisis is huge. But the current media focus on this neglects other contributing factors. Globally, we’re still readjusting to the post-pandemic world, and establishing our priorities. Reacting to financial strain in the same way we used to won’t necessarily work. As businesses, we must find new ways to support ourselves and our employees through this uncharted territory.
How can businesses support employees while protecting their profits?
Navigating wage increases
There’s currently a lot of pressure on businesses to increase wages. This is quite right — and it’s an obvious way to give people more money. But advice, guidance, and support are also important.
Helping staff understand how to manage their finances is one of the most effective ways we can support them. As a nation, we’re chronically ill-equipped to give people the right tools to manage their finances. Many people are embarrassed to discuss money. Relationships between people and their banks or mortgage providers are seen as antagonistic, when they can be sources of support.
Companies must work to understand the financial situations of their staff, and help employees understand more about their finances. That way, when we discuss wage increases, the conversation can be rooted in the reality of expenditure, rather than aspirational or hypothetical situations.
This is important for business profitability. If the company can’t meet staff wage expectations because of their own financial pressures, they must aim to meet somewhere in the middle.
Reassessing the benefits package
Staff benefits can help businesses provide extra support or financial guidance. At Speakers Corner, we’ve introduced a benefits package where staff get points to spend on their choice of perks. As part of this, they can meet with financial advisors, helping them plan for the future — whether they want to discuss personal goals like saving for a house, or learn better money management skills.
As a business leader, all you can do is provide these options. Staff should be free to use whichever benefits they see the most value in. But increasing accessibility and awareness of the financial help that’s available can be more valuable than any bonus or one-off cost-of-living payment.
The unifying impact of unions
Unions do amazing things. While the headlines often come down to strike action and picket lines, the relationship between businesses and unions are intensely important and fruitful. Unions help create an environment where people can speak freely, ensuring both staff and their employers can move past the embarrassment factor and have frank conversations about pay and benefits.
They can also support employers by helping staff understand the pressure the business is under. Below the surface, everyone is working towards the same goals. So businesses should view unions as a key link to their staff, who can help facilitate long-term solutions that ultimately lead to thriving businesses.
Why one-off bonuses aren’t the answer
Many high-profile companies have offered extra cash to staff in recent months to help them cope with the cost of living. In October 2022, Rolls Royce announced it would offer a one-off payment of £2,000 to more than 14,000 employees. Banks like Barclays and Lloyds have taken similar steps.
These actions grab headlines, but do they really solve anything? There are no signs of the economic slowdown reversing (on the contrary, experts suggest this could be the UK’s longest-ever recession). So in a few months, people are likely to be in the same position they were in before the payout — but these businesses will be millions of pounds worse off.
Protect your profits by offering support and guidance instead of money (at least until you understand the specific financial problems your staff are facing). Create a culture where employees can approach leaders to ask for help if they’re struggling financially. You may not be able to give them a £2,000 cash payout, but perhaps you can offer an advance on their next paycheck, or an interest-free loan. Instead of a one-size-fits-all solution, engage with your staff and find out how you can improve their unique situation.
How can businesses manage increased costs during economic uncertainty?
Businesses are likely to be hyper-aware of their own financial situation, too. Company running costs are also on the rise, so businesses will need to keep an eye on their own outgoings over the next few months. This may mean making careful investment decisions that will help your business grow in the long-term.
Speakers Corner recently moved offices, which was a large expense. But we moved because we wanted staff to choose to come back to the office as part of our hybrid work model. Other businesses may have decided to spend the money in other ways — but our priority was to encourage staff to return to the office, so we can benefit from better relationships, collaboration, and contentment among our team members.
Ultimately, most business leaders have the financial nous to decide where their money is best spent. But when you make these decisions, it’s important to share your reasoning with your staff. Explaining your decisions can help bring people onside. The pressure is on all of us — but by keeping an open dialogue, both employers and their staff can find common ground, and weather the economic storm together.