Following the mini-budget, or the fiscal event, the pound hit an all-time low against the dollar.
What does this mean for employers? While some of the changes announced within the budget will impact you — reversing the rise to National Insurance Contributions, for example — the biggest impact will be the effect on the economy.
The UK is already struggling with the cost-of-living crisis. As the economy falls into a recession, employees will start to ask for pay rises that employers may not be able to afford…
The pound falls
The pound to euro rate has slumped, with the pound worth less than €0.92 at London’s bureau de change.
The pound plummeted next to the dollar too, hitting a record low of $1.03 before making a slight recovery.
By the time you’re reading this article the exchange rate of dollars to pounds may have fluctuated wildly again. Such is the instability of the UK economy now, with each industry facing its own challenges.
Industry reaction
The real impact is that it will force many businesses to raise prices. Importers are among the worst hit, but the effect will be felt across all sectors. Organisations are already contending with surging energy prices, with some employers struggling to heat workplaces.
Meanwhile, a public sector pay rise seems unlikely. Civil servants are facing a two-year pay squeeze, as the government abandons plans to conduct a spending review before the next election. Other public services may be facing the same squeeze.
One small positive is that the pound to dollar rate could result in a travel and tourism increase from America. However, it’s too early to tell if this will offset any losses in the hospitality industry. For most, they’ll be facing a winter of difficult decisions and financial manoeuvring.
While some companies, such as Metro Bank, are offering pay rises for all of their staff to help with the soaring cost of living, this won’t be possible for all businesses. If you are one of those businesses, how will you address a pay rise demand while managing the crunch?
A pay rise flurry
According to recent research, 64% of UK businesses surveyed say more employees are asking for pay rises. This may not be a direct result of the pound falling. The employment market has become extremely competitive following the easing of lockdown and the “Great Resignation.”
Meanwhile, half of UK businesses are experiencing higher staff turnover than usual. This follows on from the biggest yearly increase of the real living wage since calculations began. Markets continually comparing the dollar to pound exchange rate aren’t likely to reduce that figure.
As the pound tumbles, and the UK economy becomes increasingly unstable—this paints a very worrying picture. Some staff members may be concerned about heating their homes or feeding their children. Some business owners will be scrambling to keep their businesses afloat.
We’re sure you’re aware of the squeeze many companies are feeling right now. Perhaps you’re already facing tough decisions. But before you make a decision, have you considered all of your options?
How to address the increase in demand
Discussing pay is hard, managing it when the coin purse is tight is even harder. However, there are options when you can’t afford a pay rise…
Firstly, make sure you are honest about what is and isn’t possible for your business. Communication is key. Hiding financial struggles will only add to a growing sense of unease which will impact morale and staff retention.
If staff are asking for a pay rise for the sake of development, there are several ways you can address this.
If the pay rise is to help with issues relating to the cost of living or the energy crisis, there are other ways you can help without breaking the bank.
Allowing flexibility in your work patterns means that staff have the time they need to organise care arrangements and organise family issues. While hybrid or remote working might not be possible for your industry, you may be able to implement flexible start/finish times. Longer breaks, staggered shifts, and alternative working patterns are also viable options.
Research from think tank Autonomy found that a four-day week could help to alleviate some of the pressures brought on by the cost of living. While such a radical change might not be possible for your business, it does demonstrate how a change in working pattern assists the employee. The research conducted by Autonomy estimates that a parent with two children working a four-day, 32-hour week could save £3,232.40 on average per year, or £269.36 per month.
If that option isn’t available to you, then you should offer what support you can. This could come in the form of:
Assisting with bill costs
Providing access to professional financial advice
Offering on-site meals
Providing commuter benefits
And remember, you can always seek out external advice on what benefits you can and can’t offer…
Pay & Benefit Support from the HR professionals
The cost of living crisis and the pound plummeting has put many employers into a difficult position. Luckily, there are options available to you.
Speak to the Croner pay & reward team today for independent advice on staff benefits and employee salaries.
