Low pay and financial wellbeing

The situation

Since the 2008 financial crisis, average (median) UK employee earnings have failed to grow as fast as prices. The introduction of the statutory National Living Wage in 2016 has meant pay rises for those at the very bottom of the pay scale. However, in real terms, median weekly pay for those people working full-time fell 4% between 2008 and 2024, with those working in the east of England (-11%), London (-8%), and the south-east of England (-7%), particularly hard hit.

Both regular and total pay have not kept up with the increase in the cost of living. However, since Summer 2023, pay growth has begun to gradually outpace the overall rise in prices. After CPIH inflation, regular pay for all workers increased by 1.4% between February and April 2025. CIPD research finds that while between winter 2022 and winter 2023, the percentage of employees keeping up with their bills and credit commitments without any difficulties had fallen from 61% to 48%, by January 2025 this figure had only bounced back slightly to 54%. 

This matters because money worries impact the ability of employees to do their jobs, and many employers are struggling to make the productivity gains that will enable a sustainable rise in real-terms salaries across the board.

CIPD viewpoint

As income providers, employers have a responsibility to support their workers’ financial wellbeing. This includes paying a fair and liveable wage, supporting people to progress into higher-paid roles, and providing access to information and guidance to help staff manage their finances, such as that provided by the Money Advice Service.

The moral case for paying a living wage is strong, CIPD research finds that more than two in five employers have signed up to the Real Living Wage because it is the right thing to do. However, there’s also a compelling business case.

For example, employers that pay the UK’s voluntary Real Living Wage report benefits including improved reputation, differentiation and recruitment. Other benefits cited include better labour relations, and improved employee commitment and motivation. Research shows that employees also value working for an accredited employer and that customers want to buy from accredited employers. Investors are similarly drawn to and want to invest in accredited employers, while some firms expect their contractors to become living wage employers. 

Some may feel less able to introduce the Real Living Wage in times of economic uncertainty, but those that can afford it should avoid deferring their plans to do so. In the longer term, the key to making a Real Living Wage a reality for everyone is to help businesses raise their productivity. Evidence suggests that enhancing the support available to help small firms improve their people management skills could help boost productivity and consequently wages.

However, while paying people a wage enabling them to enjoy a reasonable life is important, there are other things employers can do to secure their employees’ financial wellbeing. Namely providing benefits that reduce the risk of workers falling into financial difficulty, help them should they get into difficulty, and stretch the value of their pay packet. As well as providing training and development opportunities for low-waged employees to support their in-work progression. 

All this should be brought together within a financial wellbeing strategy that supports and is supported by other people management practices such as health and wellbeing and job design. CIPD research shows the benefits of this, 59% of employees believe it is important that their current employer has a policy in place to support and improve their financial wellbeing, while 65% think that having such a policy would be an important factor in their move. Among those employees covered by a policy, these figures jump to 81%.

However, employers cannot alone improve the financial wellbeing of their employees. The financial services industry, benefit providers, advisers and administrators, employees, and especially the government all have roles to play in minimising the risk of in-work poverty. From universal credit, education and housing to pensions, financial education and household budgeting, this will include rules and regulations as well as the use of ‘nudges’ and less use of jargon.

Actions for the UK Government

Short-term:

• Protect living standards by maintaining the current levels of financial support to low-waged workers for as long as is needed during the cost-of-living crisis.
• Support employment by maintaining the current levels of financial support to employers during the cost-of-doing business crisis.
• Improve financial support during illness, such as through statutory sick pay.

Longer-term:

• Help improve financial wellbeing by embedding financial literacy in schools, further education, higher education, and apprenticeships, and working with employers and the financial services industry to improve financial awareness among employees.
• The key to improving reward for everyone is to help businesses raise their productivity. Within the industrial strategy, consider developing a stronger focus on boosting demand for skills and improving how skills are used at work to boost productivity (for example, by using sector deals to incentivise employers to take action in improving workplace practices). It should also make it easier for employers to invest more flexibly in the skills that matter to them and their staff, including through greater use of digital learning to strengthen life-long learning provision, by replacing the Apprenticeship levy with a flexible skills levy.
  
  

Recommendations for employers

Short-term:

• Ensure that pay outcomes and processes in your organisation are fair, by checking the reasons for pay gaps by gender or ethnicity, or conducting equal pay reviews.
• Pay your workers as much as you can afford and ensure that those at the bottom of the pay scale earn enough to live on.
• Point employees to useful sources of financial information and guidance, such as the Money Advice Service.

Longer-term:

• Investigate becoming an accredited Living Wage Employer. Employers that have signed up – or are in the process of signing up – report a range of business benefits, from enhanced reputations and labour relations to improved commitment and motivation.
• Create a financial wellbeing strategy that supports – and is supported by – the organisation’s overall health and wellbeing strategy. This should include running financial education and benefit communication programmes to make employees aware of the options open to them and how to get the most from their decisions.
• Explore how low-waged workers can progress in their careers and increase their earning potential; for example, by providing learning and development opportunities that enable people to learn new skills and take on additional responsibilities.
• Help stretch employees’ earnings by providing staff benefits, either directly or through a voluntary benefits scheme. Explore which benefits suit the needs of the workforce and investigate whether these can be offered flexibly so that individuals can select those that best suit their circumstances.
• Put support mechanisms in place should employees fall into financial difficulties. This could include hardship loans, access to debt counselling, or earned wage access.
• Invest in your people management capabilities to help boost productivity and make pay rises more affordable.