The cost-of-living crisis has left many UK employees struggling financially. This has had a knock-on effect on many people’s mental wellbeing too. Providing access to different financial benefits may be one way to help weather the storm.
What is the cost-of-living crisis?
The cost-of-living crisis is a term commonly used in the UK to describe the current economic situation. The prices of everyday essentials have increased more rapidly than wages since 2021 leaving people struggling to make ends meet.
What caused the cost-of-living crisis?
No single event or circumstance is the primary cause. It is rather a combination of factors, such as the COVID-19 pandemic and Russia’s invasion of Ukraine leading to supply chain disruption and skyrocketing energy costs, respectively, which pushed up prices.
With the increase in the cost of living, people have demanded higher wages to keep pace with prices. This in turn has helped fuel inflation, which the UK government has tried to tame by raising interest rates from their historically low level of 0.1% in December 2021 to 5.25% in September 2023 adding more pressure on people’s finances.
What has been the financial impact on employees?
Even as inflation rates have soared, UK salaries have not significantly increased since the 2008 financial crisis. Real disposable income (wages adjusted for inflation, taxes and benefits) fell 4.5% in April 2022—the largest decline in over twenty years. Only recently have wage increases matched inflation.
As a result, employees are increasingly anxious about economic stability and their financial outlook is understandably grim. According to Alight’s 2023 Mindset study, the number of employees concerned about stability has risen by 17% in the last year.
Most are prioritising job security over the search for new employment opportunities, with almost a third naming pay as their principal reason for doing so. Among those who are seeking new employment, 40% cite pay as their primary motivator. Additionally, one in 10 are now working second jobs, with two thirds of that number pointing to the current economic situation as the cause.
In terms of outlook, nearly half of all UK employees not only see no signs of improvement but expect their financial situation to worsen over the next year—a prediction unfortunately backed by a recent UK thinktank report. Over a third feel that the life they want will be forever out of reach.
How has the cost-of-living crisis affected employee wellbeing?
The effects of the cost-of-living crisis are more than just financial. The increased stress levels and internal pressures experienced by employees because of their growing financial concerns has led to significantly diminished wellbeing in the workplace.
Less than a third (32%) of UK employees report feeling positive energy at work, and less than half (47%) feel that their work culture has a positive effect on their wellbeing—a significant drop from 58% the previous year. 37% report experiencing low morale caused by work-related stress, and over a quarter report suffering from anxiety and panic attacks.
What can employers do to support their employee wellbeing?
Obviously, there isn’t much employers can do to address the root causes of the cost-of-living crisis, as they have no control over inflation, interest rates and geopolitical conflict. There are, however, actions employers can take to mitigate the effects of the crisis and contribute to their employees’ overall wellbeing.
The most obvious course of action might appear to be increasing employee wages and while many UK organisations have implemented wage increases in recent months, very few find themselves able to keep pace with the rising cost of essential goods and services.
There are, however, a variety of other financial benefits organisations can offer their employees that, in addition to addressing their immediate economic needs, might also serve to boost morale and improve their view of their company culture.
Alight’s 2023 Mindset study reports that 34% of UK employees want access to financial tools (an increase of over 10% from the prior year), with 31% requesting assistance with retirement savings. Providing employees with access to financial advisers who can offer guidance in their savings and retirement plans can help assuage their financial anxieties about the future.
Similarly, offering reimbursements for expenses incurred while working remotely, or even short-term loans in the form of Earned Wage Access, can help employers support their workforce during difficult financial times.
While the current economic situation is undeniably unsettling, it’s clear that employers are not powerless when it comes to providing their employees with the support they need.
Offering employees robust financial benefits options can improve engagement and morale, build trust, strengthen the employer-employee relationship, and, most importantly, help them feel more positive and secure while weathering the current crisis.