Responsible Downsizing During the Cost-of-Living Crisis

Kate Carr

• Uncategorized
• Healthy_Communities
• Healthy_Business

Few people are immune to the current cost-of-living crisis, but the impact is not being felt equally¹. Those already on lower incomes pre-crisis are likely to be most affected; by spending a more significant proportion of their household income on essentials such as energy and food – the prices of which have increased fastest – they are effectively contending with higher inflation than their wealthier peers².

Businesses are also facing significant challenges as a result of the economic downturn. Many firms are seeing falling demand for goods and services as household budgets tighten, and at the same time, their own costs – wages, rent, utilities and materials – remain high³. For some, the only option is to reduce staff levels: more than a quarter (26%) of businesses have made or are planning to make redundancies in 2023⁴.

The experience of previous financial crises shows us that people with lower levels of education are more likely to be made redundant⁵. Given the strong link between low educational attainment and poverty, people on the lowest incomes are more likely to lose their jobs. So, poorer households find themselves amid the current downturn, facing both disproportionately higher living costs and a higher risk of redundancy.

Approaching downsizing senstively

The impact of redundancy on individuals and their families can be significant⁶, particularly where those affected are already on very restricted budgets⁷. Responsible businesses must approach downsizing sensitively and sympathetically. Moreover, a poorly handled restructure could have long-lasting implications for a business, risking damage to staff morale and employee relations as well as your reputation and brand.

So, what does responsible downsizing in a cost-of-living crisis look like?

1. Make redundancies the very last resort. There are numerous alternative measures that employers can use to reduce costs, and these should be considered first – in consultation with staff, if appropriate – including recruitment freezes, flexible working, stopping overtime, or reducing hours.
2. Understand and map wider social and economic impacts. If redundancies are inevitable, make sure you understand the different people and organisations that will be affected and in what way. As well as employees and their families, other impacted groups may include suppliers, local service providers (who cater for your employees and therefore may experience lower footfall), local charities (who may benefit from employee volunteers), and public sector agencies (who may be called upon to deal with the effects of downsizing).
3. Communicate openly and honestly with affected stakeholders. A common criticism of downsizing is poor communication and a perception that not all information is being shared. Good communication helps to manage expectations and gives people time to plan and adjust.
4. Apply an equality impact lens to decision-making. Using an Equality Impact Assessment (EIA) will help you ensure that restructuring or redundancy procedures are implemented fairly and that the diversity of your workplace isn’t negatively affected. 
5. Upskill your workforce. The best way to reduce the impact of redundancy on individuals is to help them find alternative work. Developing your employees’ basic and essential skills will improve their chances of securing another role.

Redundancy can be hugely disruptive for all involved, but by following the steps above, a responsible business can minimise the impact on all affected.

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References

¹ Millions overlooked and left teetering on a financial cliff-edge during the cost of living crisis, Which? warns. press.which.co.uk (July 2023).
² Cost of living crisis, Institute for Government (February 2022).
³ The Cost of Living Crisis and Its Impact on Businesses, Funding Circle, (June 2023).
⁴ A quarter of UK organisations to make redundancies in 2023, HR Magazine (April 2023).
⁵ What can previous recessions tell us about the Covid-19 downturn?, Centre for Economic Peformance (PDF).
⁶ UK poverty: the facts, effects and solutions in a cost of living crisis, Big Issue (April 2023).
⁷ Financial Lives 2022 survey: insights on vulnerability and financial resilience relevant to the rising cost of living, Financial Conduct Authority (October 2022).