As Andy Burnham MP prepares to enter Downing Street, rising prices and faltering wage growth are pushing workers into a renewed cost of living squeeze.

The prospective Prime Minister has already made a commitment to provide additional cost of living support as a priority of his administration, as while inflation has fallen well below its 2022 peak, the gap between prices and pay is narrowing again. Regular wages rose by 3.4% in the latest quarter, equivalent to growth of just 0.1% after inflation. With the energy price cap rising by 13% in July and instability in the Middle East pushing up fuel and wholesale energy costs, real pay could soon begin to fall.

Figure 1: Annual percentage change in nominal and real regular pay, 2019-2026

Source: ONS, Average Weekly Earnings (AWE) series, 18 June 2026

As we await to see what additional Government support for workers may arrive, this article explores how employers are already responding. It draws on a representative Survation survey of 1,001 senior business decision-makers conducted for the Work Foundation at Lancaster University in May 2026, alongside the latest ONS evidence on wages and household finances. It asks how Government and employers can prevent another sustained period of falling living standards.

The cost of living crisis has evolved, but it has not gone away

CPI inflation is 2.8%, far below the 11.1% peak recorded in October 2022 but lower inflation does not mean prices have returned to where they were. It means they are rising more slowly from a much higher base.

For many households, several years of higher food, energy, housing and transport costs have eroded their ability to absorb further price increases. Indeed, nine in ten (89%) adults still regard the cost of living as an important issue facing the UK. Around one in three adults (34%) are struggling to afford their energy bills, while one in four households say they could not meet an unexpected but necessary cost of £850.

Figure 2: Selected indicators of financial pressure facing UK households in 2026

Source: ONS Public opinions and social trends, Great Britain: June 2026

These pressures are not evenly felt. The Joseph Rowntree Foundation estimates that 28% of disabled people, 40% of social renters and 37% of private renters are living in poverty, while lone parents and families with young children are also particularly exposed. Workers in places with high housing costs and weaker labour markets may have even less resilience when essential costs rise.

ONS figures show that 41% of adults are spending less on food shopping and essentials, while a third are using less gas or electricity at home and cutting back on non-essential journeys. For a significant minority, life in 2026 means making difficult choices about what to cut back on.

Employers want to support staff, but have less room to act

Employers have changed how they think about financial wellbeing since the cost of living crisis began in 2022. Our earlier research found most business leaders accepted they had a responsibility to support staff, but provision was often responsive, ad hoc and short-term. By 2024, a persistent "say-do gap" remained between ambition and action.

Our new survey suggests support is becoming more widespread – eight in ten employers (82%) plan at least one measure in 2026. However, one in seven employers (15%) plans no new financial wellbeing support at all, rising to 29% among smaller firms.

And crucially, just 22% of employers plan pay rises above inflation in 2026, falling to 16% among businesses with fewer than 50 employees.

Figure 3: Employers planning pay rises above inflation in 2026

Source: Survation survey of 1,001 senior business decision-makers (May 2026)

The most common financial well-being interventions reported are extending benefits packages (27%), providing more flexibility over working patterns and benefits (26%), and offering overtime (24%). One in five are considering a one-off cost of living payment, while others plan support with childcare, homeworking bills or financial advice.

These measures can have big impacts on individuals’ lives. Flexible working can reduce commuting and childcare costs, while well-designed benefits can help with expenses that consume a larger share of lower earners' income. All employers should be proactively looking to strengthen their offers in these areas, with a particular focus on providing extra support to those on low incomes.

However, these measures alone cannot substitute for secure hours and pay that keeps pace with rising prices.

Figure 4: The most common measures employers plan to use to support staff with rising costs in 2026

Source: Survation survey of 1,001 senior business decision-makers (May 2026)

Of course, it is also important to remember that many businesses are also under pressure. Higher employment costs, weak demand and persistent increases in business inputs have reduced financial headroom for many, particularly for smaller organisations. How organisations respond to these pressures can have a significant impact on their employees – 12% of business leaders in our survey reported having made redundancies because of rising costs and 13% have cut staff hours.

At the same time, as vacancies fall and competition for workers eases, employers face less market pressure to increase wages. Yet employees' need for support has not diminished. There is a risk that financial wellbeing slips down the employer agenda just as real wages stall and organisational costs rise.

Stagnating living standards must make the cost of living a priority for the new Prime Minister

With many employers constrained in how they can support their employees with rising costs, the focus will increasingly be on the UK Government to step in.

The outgoing Government has recognised that living standards remain a major concern. Its Great British Summer Savings scheme temporarily cuts VAT from 20% to 5% on eligible family attractions and children's meals, alongside free local bus travel for children in England during August.

These measures will help some families and could provide a short-term boost to hospitality and leisure businesses. But they are temporary and narrowly targeted. They will ultimately make little sustained difference to households struggling to pay energy bills, buy food or cover the cost of travelling to work.

The incoming Prime Minister has promised to prioritise immediate cost of living relief and deliver ‘good growth’ in every postcode. Turning that ambition into improved living standards will require action on both household costs and the quality of work available locally.

In its first 100 days, the new Government’s priority should be to protect households with the least financial resilience. This should include targeted cost of living relief, more affordable transport for local workforces and practical support for smaller businesses seeking to improve productivity, pay and job quality without putting jobs at risk.

But short-term relief must be matched by a longer-term plan to raise living standards. Important decisions lie ahead on the National Living Wage and ensuring the Employment Rights Act is delivered in full to provide workers with greater security over their hours and income. And Government and local leaders need to ensure that growth plans are properly resourced and capable of creating secure, well-paid jobs in every part of the country.

As for employers, it’s critical that where possible, they prioritise above-inflation pay rises for their lowest-paid workers. Where an organisation cannot afford an increase for everyone, available resources should be directed towards those most exposed to higher costs. Together, these measures would provide immediate protection while laying the foundations for stronger pay, better jobs and more resilient household finances.

To read more of our research on financial wellbeing and the cost of living, please see:

• Shifting Priorities? Employer responsibility in the third year of the cost of living crisis (May 2024)
• Shifting Sands: Employer responsibility during the cost of living crisis (March 2023)
• Shifting challenges? How cost of living pressures are impacting workers in 2025

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The opinions expressed by our bloggers and those providing comments are personal, and may not necessarily reflect the opinions of Lancaster University. Responsibility for the accuracy of any of the information contained within blog posts belongs to the blogger.