Over the past few weeks, we’ve had a lot of business owners ask how they can best help their teams through the cost of living crisis. This article contains some ideas from the best brains at Wow on how you can help them beat rising prices from energy bills to consumer price inflation.
What is the cost of living crisis?
The ‘cost of living crisis’ is the fall in disposable income experienced in the UK since the end of 2021, caused by a range of factors, including:
Inflation rising faster than wage increases
New taxes and national insurance contributions from April 2022
Dramatic increase in energy costs
Energy price cap raised from April 2022
Rising interest rates increasing cost of borrowing
Latest data from the Office for National Statistics states that around 9 in 10 (87%) adults reported an increase in their cost of living over the previous month in March 2022 (16 to 27 March 2022), an increase of 25 percentage points compared with around 6 in 10 (62%) adults in November 2021 (3 to 14 November 2021).
The Resolution Foundation estimates that an extra 1.3 million people will fall into absolute poverty in 2023, including 500,000 children. This will be the first time ever there has been a rise in absolute poverty in Britain outside of a recession.
As business owners, we don’t know who or how people in our teams or in our wider community will be affected. Many business owners are wondering what we can do to help.
How can business owners help with rising prices?
Firstly, even Martin Lewis, founder of moneysavingexpert.com says he is “virtually out of tools” to help people with the cost of living crisis. If he can’t help, the odds aren’t stacked in our favour - but there are some options to consider that may help tackle rising inflation costs.
The obvious one: (sustainable) pay increases With inflation forecast to average 9% this year, it’s unrealistic to expect that small businesses can increase wages in line with inflation, especially as any pay rises will be weighed down by the 1.25% income tax increase. However, it may be possible to bring forward pay reviews and do what we can to help household budgets. Any pay rise needs to be sustainable and shouldn’t risk the future of the business, so think about increasing your prices immediately.
One-off bonuses If you can’t afford pay increases, one-off bonuses may be a way that you can help your team with rising costs this year.
Put pension contributions on hold Definitely not ideal, but as a last resort an employee can choose to lower their pension contributions on a temporary basis. Employers still need to contribute the statutory amounts for the state pension regardless, so you’re not pausing all future planning.
Salary sacrifice schemes and interest-free loans With the increase in National Insurance, salary sacrifice schemes could be sensible to consider. These schemes can be used for additional holiday purchase, electric cars and bicycles. Interest-free loans are another option you may want to offer.
Altering work patterns Different people in your team will face different impacts which may influence what they need. If some people are concerned about rising utility costs, they may prefer to be more office based. Others worried about fuel prices may benefit from remote working because this cuts down on commuting costs.
Claim tax relief for working from home If your team work from home - even partially - or if it is now in their contract that they are remote workers, they can claim tax relief from HMRC on working from home expenses. The remote workers can also claim travel expenses for when they do come into the office.
Check you’re not paying too much tax You can check you’re not paying too much tax through your tax code (the one on your payslip) on this HMRC page. You can check previous years codes in case tax has been overpaid for the previous four years.
Marriage allowance transfer If you are a basic rate tax payer and your partner pays no or low tax, you may qualify for the Marriage Allowance which lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner. This reduces their tax by up to £252 in the tax year (6 April to 5 April the next year). You can apply online and back date to 2017.
Signpost access to advice Mortgage advice, financial planning and debt management counselling services will possibly be in high demand. As a business owner, you could find an arrangement to offer this advice to your team.
Communicating with your team
In the meantime we recommend communicating with your team to provide reassurance and let them know you are looking at what you can do to support them as they seek to maintain their living standards. Make sure that your team know to come and talk to you if they have any financial concerns.
Wow clients have access to our ‘Friend in Need’ employee assistance program. Feel free to share the details of this program with your team.
What will really make a difference
As Martin Lewis said, implementing these measures may help, but what’s really needed is political intervention. Protests in Spain have led to a significant package of government support, including a tighter cap on energy prices and requiring the oil companies to contribute. The French government has implemented a new price cap of 4% cap on energy prices. We believe that businesses can be a force for good, perhaps now is the time for our voices to be heard. In real terms, those on the national living wage and other low-income households spend the largest proportion of their income on expenses like energy bills and food, so will be the most directly affected group as the inflation rate soars.
If there’s anything you think can be added to this list of measures or anything we can do to help business owners help their team, please ask.