Table of contents
DOI: https://doi.org/10.58248/HS95
Overview
The horizon scan identified various issues related to living standards, including the cost of living, wage growth, work-life balance, and the changing nature of work.
Data from the Office for National Statistics (ONS) show that, from November 2021 to June 2024, households in Great Britain reported an increase to their cost of living. This peaked in August 2022, when 91% of adults reported experiencing higher living costs than the month prior.[1] Increased living costs during this period were driven by sustained high inflation in 2021 and 2022, created by strong global demand for consumer goods and related supply chain disruption, and increased energy and fuel prices.
According to the Office for Budget Responsibility (OBR), 2022/23 returned the largest year-on-year drop in living standards since ONS records began in the 1950s.[2] The OBR expects real household disposable income to recover to its pre-pandemic level by 2025/26. Wages have failed to rise in proportion with the cost of living,[3] and concerns about in-work poverty have risen.[4]
Set against this context, the Taylor review highlighted the significant growth of atypical, often more insecure, work in the UK, including forms such as zero-hours contracts and gig working.[5] Such work tends to lack the employment protection of permanent contracts and benefits such as pension, annual leave and sick leave, and there has been building concern of the under-employment and long-term financial consequences of atypical working.
During the same period, the UK experienced increased economic inactivity, defined by the ONS as people not in employment who have not been seeking work within the last 4 weeks and/or are unable to start work within the next 2 weeks. In May to July 2022, the economic inactivity rate for people aged 16 to 64 years increased to 21.7%, which was then the highest number of economically inactive people recorded in the UK since 2015.[6] In February to April 2024, the economic inactivity rate was 22.3%.[7] Employment has also been falling in recent quarters. In February to April 2024, the employment rate for 16–24-year-olds was 74.3%, down from 75.4% the year prior.[8]
Challenges and opportunities
To address cost of living challenges, policymakers have set out to increase employment and wages. The March 2023 budget introduced interventions to support parents, over-50s, and people with disabilities and health conditions to move into work.[9] More recently, as part of its mission to ‘make work pay’, the government introduced the Employment Rights Bill 2024.[10]
Experts note that, whilst employment rates increased from 70.3% to 76.2% in the 2010s, in the same period the UK saw sustained wage stagnation as productivity declined.[11] The picture is more positive for low earners, however, whom through minimum wage policies have seen the fastest growth in wages. Since being introduced, the minimum wage has increased the pay of the lowest workers by an additional £6,000 a year, compared to earnings rising in line with typical wages only.[12]
In April 2024, the National Living Wage (NLW) was increased to £11.44 for people aged 21 and over.[13] The current government has said it will go further and deliver a “genuine living wage” by changing the Low Pay Commission’s remit so the minimum wage reflects the need for pay to account for the cost of living, and by removing age banding.[14]
Increasing the minimum wage comes with challenges. Stakeholders have highlighted that small businesses can face difficult choices in how to respond to minimum wage uprating. This is especially the case for low-paid sectors, such as social care and childcare, where employers are constrained in how they can pass on higher costs to consumers.[15] In 2023, the Low Pay Commission reported that workers and their representatives had said that the rising minimum wage had not been enough to avoid hardship; and workers in low-paid sectors reported often struggling to secure sufficient regular hours.[16]
To boost employment, experts have looked to opportunities associated with the changing nature of work, such as the increased prevalence of remote and flexible working following the Covid-19 pandemic. Data shows that increases to flexible working arrangements are likely to be permanent, which could increase the saliency of issues raised in a previous POST horizon scan.[17][18] For example, homeworking can provide opportunities to workers who face barriers at work, such as caregivers and people with work-limiting health conditions and disabilities.[19] Or alternatively, unequal access to flexible working arrangements could exacerbate inequalities.
Commentators suggest that without proper mitigations, homeworking could increase the risk of burnout amongst workers who feel pressured to work longer hours.[20] Experts also caution that hybrid working could lead to stunted career development for younger workers, due to the changing nature of preparatory work activities and by reducing opportunities to develop soft skills, networking, and interaction opportunities.[21] [22]
The horizon scan highlighted a need for improved access to childcare and social care to open employment opportunities. Experts suggest that creating a “caring economy”, which comprises good-quality care services, better pay and conditions, is critical for a good economy.[23] One estimate shows that reducing economic inactivity amongst people caring for children under five could increase UK employment by 62,000-250,000 people, which could lead to an annual GDP increase between £2.8bn–£11.3bn.[24]
In the 2023 budget, plans were announced to expand the 30-hour free childcare entitlement through a phased approach, beginning from April 2024.[25] The Labour Party said it would continue to implement the expansion of free childcare prior to the general election, and that it would open an additional 3,000 nurseries by using space in primary schools.[26] The Institute for Fiscal Studies (IFS) said this plan would meet increased demand for childcare, however, the challenge would be to recruit and retain the staff necessary.[27]
More broadly in the horizon scan, experts identified a need for policies to improve worker well-being, fairness of work, and reduced pay/income/distribution inequality. One research study showed that the more value is distributed among employees, the better organisations’ performance fares over the longer-term.[28] The horizon scan highlighted excessive demands in sectors such as education and health, which have been linked to increased rates of poor mental health and burnout.[29] [30]
Academics suggest that improving worker well-being and the fairness of work is likely to drive productivity, and in turn benefit the economy.[31] The Scottish Government has made it an ambition to become a leading Fair Work nation by 2025.[32] Researchers suggest an effective active labour market policy; policies that support families; policies supporting health, safety and wellbeing; policies that promote gender parity in pay; and those that promote trade union membership, may contribute to ‘Fair Work’.[33]
Looking further ahead, researchers suggest that the development of technologies such as artificial intelligence (AI) could have a profound impact on the nature of work. In July 2024, analysis by the Tony Blair Institute (TBI) estimated that adoption of AI across the public-sector could save 25% of workforce time, which it says could lead to improved outcomes and public sector employees working fewer unpaid overtime hours.[34]
However, the TBI also estimated that by fully utilising AI in the public sector, the government could reduce the public-sector workforce by a sixth.[35] Anticipating the proliferation of AI in 2015, Stephen Hawking commented that, if “machines produce everything we need, the outcome will depend on how things are distributed,”[36] illustrating the ethical challenges provided by technological innovation.
Key uncertainties/unknowns
Experts state there are uncertainties in predicting whether changes in working conditions could be translated into increased employment, growth and living standards. For example, the IFS and Resolution Foundation have pointed to several trade-offs associated with the government’s plans to improve workers’ rights and increase the national minimum wage.[37][38]
When looking to areas such as the impact of AI on employment, researchers have caveated estimations with cautions that there are “many uncertainties involved” and that their findings should therefore “be interpreted with appropriate caution”,[39] given that this is a fast-moving change with potentially multiple divergent impacts.
Academics involved with the horizon scan therefore emphasised that a challenge for policymakers will be to ensure that they have reliable evidence when incorporating predictions into concrete plans. Further, although recent cost of living pressures were exacerbated by some domestic challenges, such as sustained wage stagnation, academics highlighted that the UK economy is unavoidably linked to international factors.
Key questions for parliament
- If the Low Pay Commission’s remit was changed to reflect the cost of living, how could this be achieved?
- How might support be provided to affected workers if advancements in AI lead to job losses in certain sectors?
- How can the collection of a robust evidence base that supports the successful design and implementation of hybrid working in non-pandemic conditions be instigated?
- What measures can be taken to remove the childcare access barriers that reduce economic participation?
- How can motivations to stay in low-paid economic employment be balanced against financially supported economic inactivity?
- How can the real living wage help to address economic challenges?[40]
References
[1] Office for National Statistics, Public opinions and social trends: Great Britain: household finances.
[2] Office for Budget Responsibility, “Economic and fiscal outlook”, March 2024
[3] BBC, What has happened to pay in the UK?, March 2023
[4] The Health Foundation, In work poverty trends, July 2024
[5] Taylor, M. Good Work: The Taylor Review of modern working practices, 2018
[6] Office for National Statistics, Employment in the UK: September 2022, 13 September 2022
[7] Office for National Statistics, Employment in the UK: June 2024, 11 June 2024
[8] Office for National Statistics, Employment in the UK: June 2024, 11 June 2024
[9] Department for Work and Pensions press release, ‘Back to work Budget’ supporting people to return to the labour market, 16 March 2023
[10] Brione, P., Cunningham, S., Foster, D., Long, R., Parry, J., Francis-Devine, B., Powell, A., Murray, A. and Priestley, S. Employment Rights Bill 2024-24, October 2024
[11] Cominetti, N. and Slaughter, H. Job done? Assessing the labour market since 2010 and the challenges for the next government, Resolution Foundation, June 2024, p3
[12] Cominetti, N., and Slaughter, S. Labour Market Outlook Q2 2024: Happy 25th birthday to the minimum wage, Resolution Foundation, March 2024, p1
[13] Low Pay Commission press release, Largest ever cash increase to the minimum wage, 21 November 2023
[14] Labour Party press release, Labour’s Plan to Make Work Pay: Delivering A New Deal for Working People, 24 May 2024
[15] Bryan Sanderson, Letter from Bryan Sanderson with LPC recommendations for 2024, 21 November 2023
[16] Low Pay Commission, Low Pay Commission summary of evidence 2023, November 2023, p 17
[17] Bloom, N. (2023). Does working from home have a future?: IFS Annual Lecture 2023. IFS.
[18] POST, The impact of remote and flexible working arrangements.
[19] Parry, J., Young, Z., Bevan, S., Veliziotis, M., Baruch, Y., Beigi, M., Bajorek, Z., Richards, S. and Tochia, C., Work After Lockdown: No Going Back what we have learned from working from home through the COVID-19 pandemic, 2022
[20] Steele, F., “Is working from home creating an epidemic of burnout and loneliness? Spacemade has an answer”, Workplace Insight, 2 April 2024
[21] Christian, A., “Hybrid working ticks many boxes – but it’ll never be a one-size-fits-all solution for every worker and company”, BBC, 11 December 2023
[22] Institute of Student Employers press release, Work experience returns but students must be prepared for hybrid, reports Institute of Student employers, 13 July 2022
[23] Women’s Budget Group, Creating a caring economy: a call to action, September 2020, p 3
[24] Kelly, R., et al, No Kidding: How Transforming Childcare can Boost the Economy, KPMG UK and BusinessLDN, February 2024, p 7
[25] HM Treasury, Spring Budget 2023, HC 1183, 15 March 2023, p 54–55
[26] Labour Party press release, Labour’s plan for childcare and early education, 9 June 2024
[27]Farquharson, C, Labour’s plans to build childcare space in schools will nudge the market in a different direction – but not transform it, The Institute for Fiscal Studies, 9 June 2024
[28] Vithana, K., Jayasekera, R., Choudhry, T. and Baruch, Y. Human capital resource as a cost or investment: A market-based analysis, International Journal of Human Resource Management, 34, 6, 1213-1245, 2021
[29] Wray, S., and Kinman, G., Supporting Staff Wellbeing in Higher Education. Education Support, 2021, p 3
[30] Health and Social Care Committee, Workforce burnout and resilience in the NHS and social care. House of Commons, 8 June 2021
[31] Findlay, S., Enabling fair work, productivity and inclusive growth: lessons from Scotland. The University of Strathclyde, 31 June 2020, p 47
[32] Scottish Government, Fair Work action plan: becoming a leading Fair Work nation by 2025, 9 December 2022
[33] Alma Economics, Measuring Scotland’s Performance as a Fair Work Nation, Fair Work Convention, October 2023, p 9–10
[34] Smith, T., et al, Economic Prosperity: The Economic Case for Reimagining the State. Tony Blair Institute for Global Change, 9 July 2024
[35] Atkinson, I., and Browne, J., The Potential Impact of AI on the Public-Sector Workforce. The Tony Blair Institute for Global Change
[36] Smith, J., Stephen Hawking says capitalism is way scarier than the robot takeover, Mic, 2015
[37] Cribb, J., Henry, A., and Waters, T., Labour’s policies on workers’ rights and mandated workplace benefits, Institute for Fiscal Studies, 26 June 2024
[38] Cominetti, N., and Slaughter, H., Job done? Assessing the labour market since 2010 and the challenges for the next government, June 2024, p 27–35
[39]PWC, The Potential Impact of Artificial Intelligence on UK Employment and the Demand for Skills, August 2021 p 5
[40] Vithana, K., Baruch, Y., Ntim, C. and Zhang, Z., Advocating the Real Living Wage, Living Wage Foundation, 2019
Photo by: Andriyko Podilnyk on Unsplash
