In the preceding months, unforeseen demand from a world emerging from Covid had already pushed up prices and compounded supply chain issues for many products. However, it was war in Ukraine that shifted higher costs into a crisis. Action taken by The Organisation of the Petroleum Exporting Countries (OPEC) to reduce oil supply will operate to maintain high oil prices. Inflation across Europe and North America has reached levels not seen for 40 years. Concerns are growing that higher energy costs could even lead to shortages and power cuts later in the winter. This cost of living crisis was the second “black swan” (a low probability, high impact event) in two years. Indeed, the 2021 Report suggested that a future black swan “could be economic, such as a surge in inflation”. Although it could be seen as a ninth driver of change, the cost of living crisis arises from the coming together of several drivers of change.
In the UK, pay awards have lagged behind rising inflation, contributing to record cuts in real pay. As the Office for Budget Responsibility pointed out in its November 2022 Economic and fiscal outlook: “Rising prices [will] erode real wages and reduce living standards by 7 per cent in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support”. This is the biggest fall since records began. Many people are responding to the cost of living crisis by taking steps to earn more. In the UK, 19% are looking for promotion or a better paying job to earn more and 15% are looking to work longer hours. Others are looking to spend more time at work to reduce domestic energy bills and taking on second jobs.
Despite pay awards generally falling well behind cost of living rises, some employers are awarding more generous pay rises driven both by the need to attract and retain people and by concerns about the impact of the cost of living crisis on their people. Many employers see this as forming part of the social aspect of their Environmental, Social and Governance (ESG) commitments and a wide range of responses are emerging, including making one-off payments.
For more information about employment law