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On Tuesday 15 March 2022, the Work Foundation hosted the second event of its Work Matters series, featuring leaders from business, policy and the charity sector. The event reviewed the latest UK labour market statistics released by the Office for National Statistics that day and looked ahead to the Spring Statement on 23 March.

Each panellist highlighted the key challenges facing workers, employers and society as the labour market continues to tighten and people are put under financial pressure from the cost of living squeeze as energy and fuel prices soar.

There are both opportunities and challenges in the labour market

Kitty Ussher, the Chief Economist at the Institute of Directors, focussed the good news around the labour and the challenges ahead:

“The good news. Unemployment is falling still down to 3.9% now. That means if you are feeling sort of cash constrained, the chances are that you're in work, which is a very good sort of first start. Most of those people who want to work are working. Vacancies are very high. That means there's opportunity in the labour market.

“In terms of rates of pay if you include bonuses then pay is actually just about, on the latest data, keeping up with inflation. Now, that's a much more positive picture than you would presume seeing recent headlines. But if you exclude bonuses, that's not the case, which implies that things are more difficult in terms of being able to cover inflationary costs if you're in the public sector than if you're in the private sector.

“So that takes us on perhaps to the less good aspects of the data that was released this morning. Real wages falling in the public sector. And I think the particular sort of pandemic point to draw out is the rise in levels of inactivity. So that seems to be a lasting effect of Covid. People who are no longer in the labour market are more likely to be older people. Some of those are saying that they've taken early retirement and a large proportion of those who are previously on a sort of higher professional level jobs.

“So, in terms of cost of living impacts, perhaps they've taken a judgement that they want a broader life experience and they have accumulated enough savings to do so. But the third most common group that is now inactive are people who previously worked in care. So, I don't know whether there's a sickness thing there or totally kind of burnt out, but obviously over a working lifetime you will have accumulated perhaps less savings if you're in a lower paid sector.

“And so that's a particularly kind of worrying cohort in a climate of cost of living increases.”

Is the squeeze because of short-term impacts or is this just a new world in which we are poorer than we thought we were?

David Gauke, the former Secretary of State for Work and Pensions and former Chief Secretary to the Treasury, gave an insight into the challenges facing the Chancellor ahead of the Spring Statement.

“We are seeing wages fall in real terms or holding their own best at a time when the labour market is so tight. And that does not bode well. It suggests that there isn't that much unused capacity in the economy, that the Bank of England may feel it needs to put up interest rates further if the labour market is as tight as it appears to be. Certainly not a time where you'd think there is much scope for sort of big expansion in terms of loosening monetary policy, to put it mildly. So where does that leave us looking ahead at the Spring Statement?

“We're getting quite a little of briefing coming from the Treasury at the moment saying this is going to be policy lite, there's not very much that we can do, nothing very much to see here. And I’ve no doubt that that was the original intention of Rishi Sunak at why he got the announcements out of the way relatively early on the energy loan, on the council tax rebate, this was supposed to be the response to the cost of living crisis and get it out of the way and then they can have a ‘nothing much to see here spring statement’.

“The Treasury prefers having one fiscal statement a year. I don't think that that is going to be feasible and I'm very sceptical about all the suggestions that this is going to be a very light event. In the long term I don't think you can borrow your way to maintain higher living standards than the productivity of economy can justify. And I think there is a big question as to whether how much of the squeeze is because of short-term impacts, Russia's invasion of Ukraine, or is this just a new world in which we are poorer than we thought we were?”

We are now facing the spectre of 20 years in which living standards are not going to budge

Miatta Fahnbulleh, the Chief Executive of the New Economics Foundation, focussed on the challenges of the living costs squeeze and the need for a living wage so that people can afford the basics.

“You know, for me, the squeeze that we're seeing doesn't feel ordinary. It doesn't feel run of the mill. 54% hikes in things like energy bills in one year is absolutely extraordinary. Which is why I can't see a way in which the government doesn't intervene, in which the Chancellor doesn't do much. It is extraordinary times.

“I think it requires an extraordinary response. And I think for me, there are short term mitigating action that the Chancellor should be taking. I think one of the quickest way to do that is to increase Universal Credit. And I think there's a kind of painful, bitter irony that if, you know, the Chancellor had to make the decision to cut that £20 uplift Universal Credit back in the autumn, the thousand pounds would have helped mitigate some of the rising prices that we're seeing.

“I think he's also actually got to have to act on the energy side. And there are things that he can both to soften the increase in energy prices that we're seeing, and throw in a windfall tax on energy producers there, as well as big measures on energy efficiency just to reduce the amount of energy that we use.

“We are now facing the spectre of 20 years in which living standards are not going to budge and I think we will require quite a focussed and targeted response. And the sorts of things I'd like to see is, I do think we need to move to a world where the national living wage actually reflects the true cost of living so that we don't have this nonsense of a real living wage that tries to do that and a national living wage which is in fact the minimum wage. I'd like to see that align with what we call living income, a safety net within our Social Security system for both people and working out of what ensures that people can afford the basics, which would then allow people to engage in the labour market on stronger terms.

“Then again, we'll have a rebound effect on wages. The sort of thing that we're seeing, you know, it is not a one-off. Twenty years I go back to which living standards haven't budged. We've got a genuine structural problem with our economy. And I think the government needs to both respond to the here and now, but start thinking about the long term.”

View a recording of the event