Against a backdrop of economic turbulence and political disarray, recent times have been particularly challenging for ICAEW members. And despite working in a vast array of organisations, spanning multiple sectors and sizes, there is much commonality when it comes to the issues that are keeping our members awake at night.
Looking back over the last four weeks those principal challenges will come as no surprise, with energy, inflation and skills dominating the list of concerns.
ICAEW’s Business Confidence Monitor (BCM) takes the sentiment temperature of members on a quarterly basis and assigns metrics to establish trends and provide comparison across time periods, regions and sectors. But it is insights gathered from members through meetings and discussion groups that highlight the real-life stories behind the BCM.
Through our volunteer network of committees, community advisory groups and regional networks we hear first-hand the challenges facing members, a snapshot of which are outlined below. We use this information to support and guide our content strategy, providing members with access to resources and information to help them navigate these challenges.
The rising cost of energy
The Energy Bill Relief Scheme which runs to the end of March 2023 was generally welcomed by members, particularly those in energy-intensive sectors, including manufacturing. Post-Autumn Statement, concerns have been raised about the lack of clarity as to what happens from April 2023 onwards and what support might be available and in what form.
Members in the hospitality sector have reported higher energy bills and in many cases declining demand driven by the cost-of-living crisis. As real incomes fall due to inflationary and mortgage pressures, households may be forced to prioritise eating and heating over a meal out or a drink at the local pub. While it is hoped that the Christmas period will offer a temporary reprieve, prospects for 2023 remain uncertain.
Concern has been raised on the detail behind the current Energy Bill Relief Scheme and that it doesn’t help businesses as much as it could. The discount doesn’t apply to the overall charge per kWh and applies only to the wholesale or commodity element of the supply, which contrasts with the Energy Bills Support Scheme for households that is applied to the total amount, including network and supplier operating costs.
- ICAEW has created the Energy crisis hub, a one-stop shop for content and events designed to provide practical support and advice on navigating the energy crisis. Meanwhile, an ICAEW Insights podcast – The energy crisis - what can businesses do? – explores the opportunity for organisations to secure their own energy supply and strategies to reduce energy demand.
Rising energy costs have been a key driver of the inflationary pressures faced by organisations, but it is not the only reason for the rise in inflation that is having such a detrimental impact on business. Wage inflation, in part driven by the cost-of-living crisis, has been another key component. Add to this supply chain pressures with the cost and availability of inputs, and the pressure continues to mount.
Contract pricing, planning and forecasting have become much more difficult as a result. While many organisations initially resisted raising prices, we are now starting to see price increases pushed through, a situation reiterated by the findings of Q4’s BCM.
Worryingly, some members have reported experiencing opportunist pricing activity where price increases have been introduced using inflation as a cover. Expectations are that the current inflationary spiral will last through 2023 and into 2024. This is supported by OBR forecasts of a UK inflation rate of 9.1% by the end of this year and 7.4% in 2023. Although predicted to fall, headline rates of inflation are still at levels not previously experienced by all.
- ICAEW’s Inflation hub takes a closer look at the impact of inflation and brings together expert opinion, data and analysis. ICAEW’s Cost of doing business hub provides insight and advice on all these factors.
Skills availability and the war for talent
The availability of skills to meet demand and the challenges with retaining and attracting talent have dominated member feedback. The COVID-19 pandemic was a catalyst and Brexit also a factor, with challenges associated with attracting workers into manufacturing and hospitality regularly cited by ICAEW members.
Increasing demand for accountancy services, meanwhile, has placed pressure on practice firms. Many have reported difficulties in servicing client requirements due to a shortage of staff.
Hybrid working is yet to be fully understood, with many organisations maintaining a watching brief as to where the new normal ultimately lands. Hybrid working is not possible in all sectors, which has made things even more difficult for some.
Wage inflation has been a hot topic of discussion; some organisations have reported losing staff to offers of 20% above current salary, while others are battling with navigating pay demands of much less but set against squeezed margins. Initially the conversation was about what percentage pay award was appropriate, but more recently, discussion has centred on other initiatives – namely one-off payments, bonuses and benefits including free food – to help workers navigate household budgetary pressures.
This shift in part is to circumvent a bidding war for talent and to avoid pricing in additional staff costs, both now and in future. Training has been identified as both a development of skills and retention strategy, but this takes time.
The Autumn Statement acknowledged difficulties in the labour market, with nothing to address the challenges now. It’s possible that in 2023 the employment market may begin to soften from its current state with workers less willing to move, but only time will tell.
An on-demand webinar from ICAEW - The future of work – skills, retention and recruitment – explores these issues and offers practical advice
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