New research analyses the impact of the Spending Review announced by the Chancellor earlier this week and what this will mean for pay packets.
A report by the think tank Resolution Foundation states that the pandemic is set to lower wages by £1,200 each year per worker by 2025.
The think tank warns of the risks this could pose to employees who will already be living through an unprecedented financial crisis in addition to the changes that Brexit will bring.
An additional factor which could damage wellbeing amongst employees is the slower growth of household incomes.
Prior to the financial crisis in 2008, household incomes had grown by 40 per cent in the 15 years leading up to the crisis. This growth is predicted to now fall to a quarter of what it previously was, only 10 per cent, between 2008-2023.
This is likely to have a large impact on the wellbeing of workers who will, according to the report, have to simultaneously deal with “the combined effects of weaker pay growth and higher unemployment”, which will “squeeze” living standards.
The report further mentions the disproportionate effects of public sector pay freezes that will affect over 1.3 million workers in the UK. Not only does the report use information from the Institute for Fiscal Studies to suggest that the wage gap between public and private sector earnings fell to zero in 2019-2020, it also states the impact this move will impact certain groups more than others.
What is clear is that the burden of a pay freeze will not be evenly spread. Women are more likely than men to be affected by the freeze, and the devolved administrations, as well as regions in the north of England, have the highest share of affected workers.
National living wage and its increase has also been affected by COVID-19. The Chancellor announced a 19p rise in the National Living Wage (the minimum wage for adults over 25 years old) from April 2021. This will be the smallest wage increase seen since 2013. Unsurprisingly, it is also lower than expected had the pandemic not struck.
In a mental health policy paper released by the Government, entitled ‘Staying mentally well this winter’, financial wellbeing is listed as a problem that could affect employees.
The Government states that there is a “well evidenced link between financial insecurity and poor mental health”. It encourages employees to utilise the Money Navigator Tool which has been launched by the Money and Pensions service.
Torsten Bell, Chief Executive of the Resolution Foundation, said:
The Covid crisis is causing immense damage to the public finances, and permanent damage to family finances too, with pay packets on track to be £1,200 a year lower than pre-pandemic expectations.
The pandemic is just the latest of three ‘once in a lifetime’ economic shocks the UK experienced in a little over a decade, following the financial crisis and Brexit. The result is an unprecedented 15-year living standards squeeze.
*This research was taken from Resolution Foundation’s report ‘Here today, gone tomorrow: Putting Spending Review 2020 into Context’ which was published in November 2020.
Monica Sharma is an English Literature graduate from the University of Warwick. As Editor for HRreview, her particular interests in HR include issues concerning diversity, employment law and wellbeing in the workplace. Alongside this, she has written for student publications in both England and Canada. Monica has also presented her academic work concerning the relationship between legal systems, sexual harassment and racism at a university conference at the University of Western Ontario, Canada.
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