Employers Confront Inflation in the UK

Global HR

As employers and employees cope with the continuing effects of inflation in the U.K., political instability has made it necessary to craft policies independent of uncertain governmental budgets. In late September, the U.K.’s “mini budget” laid out a series of potential initiatives that would impact the effect of inflation on employers and employees, but the resignation of former Prime Minister Liz Truss has thrown those actions into question.

“It’s really anybody’s guess what’s going to happen next,” said Ed Livingstone, an attorney with Fox Williams in London.

The Bank of England has raised interest rates, which might have a negative effect on borrowers and mortgage holders. “The theory behind that goes that if people say inflation is running high or higher than you would like it to, put interest rates up,” said Fiona Herrell, an attorney with Brodies in Aberdeen, Scotland. “Then that might solve the spending habits of the population and therefore bring inflation back down.”

Pressure to Hike Wages

The recently appointed Prime Minister, Rishi Sunak, has stated that a new budget will be announced on Nov. 17. Until then, companies can take certain steps independently to alleviate the effects of inflation. It’s likely there will be pressure from employees for higher wages, but employers may tread carefully around this option. 

“One doesn’t want to get into a situation where wages are just expected to go up by huge amounts year on year. That will just drive inflation up, and we’ll get into a horrible vicious spiral,” said Jane Mann, an attorney with Fox Williams in London. “Employers are in a really difficult position because they’re facing demands.”

“If you commit to a salary increase for someone, then that is a permanent change to the terms and conditions, as it’s not something that you can then easily reduce or remove,” Herrell noted.

Options for Employers and Employees

Instead, employers may choose to offer one-time payments or hardship and financial assistance funds that allow employees to apply to their employers for relief funding. “Notwithstanding the political instability at the moment, we also have been thinking with some of our clients about the indirect financial support that you can provide to employees,” Herrell said. “If people can work from home, do you permit them to work from home more than they are required to come to the workplace so that they’re not having to incur travel costs?” Other options include increasing subsidies at onsite canteens and cafeterias or potentially removing the cost completely and offering free meals.

Employees need to talk honestly with their managers about the situations they are in, so employers can support their employees as best they can through these difficulties. “There’s a sense that they want to do right by their workforce. They want to do right by their employees, but also just acknowledging that individuals who are facing financial difficulties are not going to be able to come to work and perform at the levels at which they normally do because they’re potentially distracted by worrying about bills that are coming up or unexpected financial commitments that they have to meet,” Herrell said.

It’s important that employers try to take care of their employees in order to retain their best workers. “In many sectors in the U.K., there’s a shortage of talent. These might be steps that employers want to take in order to try and protect and support their current workforce as much as they possibly can,” Herrell said. “Depending on how you react to the current financial situation—and cost-of-living crisis—and how you support your colleagues through that, you might find that people want to come and work in your organization, because they value the way in which you have dealt with this issue.”

Katie Nadworny is a freelance writer in Istanbul. 

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