The Bevan Foundation
News about the cost-of-living crisis is coming thick and fast. A Recent Bevan Foundation survey revealed that nearly half of people in Wales cannot afford more than the basics, resulting in many cutting back on heating, clothing, food and transport.
The research also found that while nearly everyone is tightening their belts, the lower a household’s income the greater the difficulty they have affording essentials. The Foundation found that around one in eight people sometimes or often go without heat, food or other basics.
The outlook is tough, with inflation set to rise to 11% by December. Thereafter the pace of price rises is expected to slow, but inflation is unlikely to go into reverse. People will be living with severely stretched budgets for some time.
The business implications of the crisis are huge. Consumer spending accounts for just under two-thirds of the Welsh economy so any contraction is bad news. Many business leaders are anticipating a recession and many more are concerned about their own business’s survival.
Owners and managers are already coping with soaring costs of everything from electricity to sunflower oil. With less to spend on meals out, holidays or home decor we can expect low- and mid-market brands to be really squeezed. Already retail sales of clothing and household goods have dropped sharply, and there are reports of declining sales in deliveries and takeaway foods as well as in supermarket food. Analysts such as Deloitte predict further declines over the rest of 2022.
We saw in the pandemic that many businesses adapted and innovated to deal with the extraordinary circumstances of 2020. Circumstances are clearly different but that’s not a reason to do nothing. So what can businesses do now?
The old adage of cutting costs and raising prices remains fundamentally true, and there are a million and one ways to do this. However, many commentators point out that cutting pay at a time of recruitment challenges and putting up prices as inflation bites are counterproductive. Instead, the focus should be on boosting efficiency and productivity, making non-staff savings, tight financial management and innovation in products and processes.
Public bodies can also help, even though they too are coping with inflation and soaring demand for services. Prompt payment for goods and services is more important than ever, as is local procurement. And there is the perennial call to cut business rates.
Less obviously, businesses can contribute to reducing the financial pressure on households – creating a virtuous rather than vicious circle. Business in the Community (BiTC) has recently set out their ideas for business action. They include paying employees the real Living Wage and giving cost of living pay awards; providing other types of financial support such as help with commuting costs or childcare; signposting to financial advice services; greater flexibility for working carers and support for worker wellbeing. To this I’d add providing guaranteed hours of work and occupational sick pay – both of which give workers some financial stability and security.
Businesses can also consider their consumer products. No-frills products and services are already popular and are likely to become even more so. Scrapping premiums on lower-cost products or one-off purchases, offering flexible payment options and reducing exit penalties can all ease pressure. And if a customer is in financial difficulty, treating them with respect and a referral to independent advice is likely to be more productive than threats of debt collectors and court action. Tight household finances are already affecting people’s mental and physical health – businesses should not make matters worse.
Finally, businesses should consider how they can help their communities by supporting local charities with donations is cash, in kind or of staff time. Businesses have been the mainstay of food banks and social supermarkets, with surplus food proving a lifeline for people in severe hardship. Sometimes what low-income households need is not what middle-income professionals think they need – so businesses should be open to discussions with local charities and community groups about making the right offer.
Times are tough for business and households alike. To survive and even thrive, businesses will need to be not only flexible and efficient but also fair and responsible in their relationships with their customers, workers, and the wider community.