Could the UK be heading for a ‘cost-of-living comedown? - ’Julia Turney

With UK inflation now seemingly at the beginning of its downward trend, dipping to 8.7 per cent in April, optimism could finally be on the horizon, yet an end of the Bank of England’s tightening cycle is still seemingly still yet to come. While inflation has eased, the effects of a high-cost environment are still being felt and are giving rise to a ‘financially vulnerable’ workforce. With wage growth showing little signs of easing, and Scottish workers now paying some of the highest income tax bills in the UK – our data shows how employees who are increasingly resorting to debt could be impacting the UK’s long-term economic recovery.

In our research of more than 3,000 employees across the UK, more than a third of workers said they had used credit in the past 12 months. Looking in detail, Buy Now, Pay Later, credit cards, bank loans and payday loans were the most used by those seeking a short-term boost to their finances in lean times. Among Scottish workers, Buy Now, Pay Later was the most used credit service by far, with over two fifths (43 per cent) using this, and a further 14 per cent planning to use it in future; highlighting how people are increasingly looking at ways to make their salary go further. Exploring other forms of credit across the UK, shockingly, almost a third (30 per cent) increased their use of credit cards, over one in seven (17 per cent) had taken out a bank loan, while one in ten (12 per cent) resorted to payday loans.

If left unresolved, a cheap credit surge could risk a long-term impact on the UK’s economic recovery, delaying a return to confidence as increasingly vulnerable consumers struggle with mounting debts at a time of low wage growth. In the FCA’s Financial Lives Survey from October 2022 it was suggested that almost half (47 per cent) of consumers currently have at least one form of vulnerability – a rise from 46 per cent in its 2020 report. If this trend continues many more people will struggle to absorb financial shocks and could be left unable to prepare adequately for their own financial futures.

What is perhaps most worrying however, is the long-term impact the cost of living has had on employees’ wellbeing. Over one in ten claimed to already be using a foodbank (11 per cent) and 16 per cent said they may need to use one this year. Nearly one in ten (9 per cent) also admitted to having spoken with a money charity in the last 12 months, with 17 per cent planning to ask a mental health charity for help.

Julia Turney, Partner and Head of Platform & Benefits, Barnett Waddingham

With many UK employees now turning to their employers for guidance and support in this environment, there is a clear onus on businesses to review the support they provide to their workers. After all, a financially vulnerable workforce will not only directly impact employee engagement, and subsequent business productivity; but could leave employers at risk of a high amount of churn as workers leave for better salaries, and better support. While there is no ‘silver bullet’ to solving these issues overnight, employee wellbeing should be high on the list of priorities of UK businesses wanting to avoid operational and reputational damage.

​Julia Turney, Partner and Head of Platform & Benefits, Barnett Waddingham