Home Finance The Cost-of-Living Crisis Continues to Bite for the UK’s Most Vulnerable

The Cost-of-Living Crisis Continues to Bite for the UK’s Most Vulnerable

by internationalbanker

By Monica Johnson, International Banker

 

According to recent figures published by the UK Government’s Department for Work and Pensions (DWP), the United Kingdom’s 2022-23 cost-of-living crisis triggered the steepest rise in 30 years in the number of UK citizens falling into “absolute poverty” (defined as living in a household with an income below 60 percent of the median household income in 2010-11, adjusted for inflation). Even with rising costs of necessities such as food and energy proving hugely painful for most Britons and often drastic measures still having to be taken to save enough money to pay for them, there is hope amid falling inflation rates that the worst of the crisis may be in the past.

It was largely the combination of soaring inflation, the war in Ukraine and the unleashing of post-pandemic demand putting additional pressure on prices that saw inflation accelerate markedly across much of the world, including the UK. Prices of consumer goods and services soared by 9.6 percent in the 12 months to October 2022, with food and energy prices among the most significant contributors. However, the decision by the energy regulator, Ofgem (Office of Gas and Electricity Markets), to raise the household energy price cap by 54 percent from April 2022 meant that the UK was more acutely impacted than most other countries, with the average British household lumbered with an approximately £700-per-year rise in its annual energy bill. Further subsequent increases in the default tariff cap by Ofgem meant that households’ financial woes were only further compounded.

Fast forward to today, and it would seem that many members of the British public—particularly the poorest and lowest-income earners—remain financially crippled by the cost-of-living crisis, which itself remains ongoing, seemingly indefinitely. Indeed, a recent poll conducted by the Financial Conduct Authority (FCA) found that the crisis had forced 27.6 million people to either entirely cease or cut back on savings and investments. Conducted between December 2023 and January 2024, the UK financial-services watchdog surveyed 3,450 adults in the country, finding that 44 percent had stopped or reduced savings or investing activities over the past year, a higher figure than the 40 percent of respondents in the same poll conducted 12 months earlier.

As a UK parliamentary briefing on the DWP’s analysis published on April 8 further elucidated, the number of people with absolute low income increased by 500,000 before housing costs and 600,000 after housing costs “in the year to 2022/23”, with falling real incomes chiefly responsible for the dire situation. “Absolute low income is likely to continue to rise in the short run,” the briefing added, citing the think tank Resolution Foundation’s forecast in September 2023 that absolute poverty would increase by 300,000 people, from 11.7 million in 2023-24 to 12.0 million in 2024-25. “This will bring the percentage of people in low income to 18.0 percent in 2024/25, the same rate as 2019/20.”

Perhaps the most damning of the DWP’s findings is that among working-age adults, pensioners and children, the latter cohort’s absolute poverty is forecast to rise most sharply. A mammoth 25 percent of children were living below the poverty line in 2022-23, markedly higher than the 23.8 percent recorded a year earlier and the largest yearly rise since records began in 1994-95. Such figures follow similarly sobering statistics from the United Nations International Children’s Emergency Fund (UNICEF), which ranked countries based on their most recent rates of child-income poverty and the proportional change in that rate over a seven-year period (comparing data from 2012–2014 to 2019–2021). The study ranked the UK at the bottom, along with Türkiye and Colombia, and also found that between 2014 and 2021, the UK experienced the largest increase in relative child poverty of any advanced economy.

Are there any signs that the crisis is easing in 2024 compared to the previous two years? Certainly for some at this stage, but not for all. Annual inflation has clearly been on a downward trajectory over the last year or so, with a 3.4-percent year-on-year rise registered in February, the lowest rate since September 2021 and much lower compared with the 10.4 percent posted in February 2023. March also saw the UK’s shop price inflation fall below 2 percent for the first time since the cost-of-living crisis began, according to data from the British Retail Consortium (BRC), as price growth declined to 1.3 percent from 2.5 percent in February. Food and non-food prices both fell month-on-month, moreover, by 0.3 percent and 0.4 percent, respectively.

It should also be stressed, however, that while inflation is certainly on a downward trend, prices continue to rise, albeit at a slower rate. Indeed, a recent analysis by UK news publication The Observer found that British households now spend between 35 percent and 50 percent more on products and services than they did in April 2022. And an analysis from the Resolution Foundation published in December 2023 warned that recent declines in inflation should not be taken as firm indications that the pressures on households have disappeared, with people twice as likely to report that their financial situations had worsened than improved between July and October 2023 (38 percent versus 15 percent).

The think tank’s report “Pressure on Pay, Prices and Properties”, using data from an October 2023 YouGov survey of 8,378 adults, found that the cost-of-living challenges facing British households have not disappeared with fast-falling inflation, as high and highly variable housing-cost rises have offset the welcome return of pay increases—reflecting “a new phase” in the cost-of-living crisis, as rising housing costs move centre stage. “Over two-in-five (42 percent) households reported an increase in their housing costs this autumn, more than at any point in the past decade.”

The extreme pressures experienced by households in the autumn of 2022 (when 30 percent experienced food insecurity, defined as an inability to afford sufficient food over the previous month) have eased somewhat but remain well above normal levels, as the Resolution Foundation noted in its analysis, with 22 percent of households in the autumn of 2023 still food insecure, almost three times as many as before the pandemic (8 percent).

On a more optimistic note, however, Ofgem has confirmed that UK households’ energy bills will decline to their lowest levels since the cost-of-living crisis started, meaning that people should have more spare disposable income to buy goods and services. Falling wholesale prices have allowed the regulator to lower the price cap, which, in turn, has forced energy bills downward by around 12 percent for the average household. But they are still around £590—or 54 percent higher, on average, than in March 2022. Citizens Advice also warned in January that 5.3 million people reside in households that remain in debt to their home-energy supplier.

And while some 14 percent of FCA poll respondents—or 7.4 million people—said they were struggling to pay bills and credit repayments, this figure was down from 10.9 million a year earlier. Caveated again, however, the figure remains well above the 5.8 million that the February 2020 version of the survey recorded prior to the emergence of the cost-of-living crisis. And while 23 percent were found to have used their savings or investments to stay afloat amid the crisis, 9 percent less than a year earlier, the figure skyrocketed to 40 percent among those who said they were not coping financially.

Perhaps that final statistic provides the most significant takeaway from the UK’s inflation-fuelled cost-of-living crisis—namely, that it continues to have a disproportionate bearing on the poorest in the country. Indeed, focusing on the health implications underscores the extent to which the crisis has impacted the most vulnerable among the British public, with a study published by the open-access journal BMJ Public Health in late September 2023 finding that the proportion of people “dying before their time” (under the age of 75) will rise by almost 6.5 percent due to the continuation of high prices.

The crisis will “cut lives short” and “significantly widen the wealth-health gap”, the study also noted, with the most deprived households set to experience four times the number of extra deaths than the wealthiest ones, mainly as a consequence of having to spend larger proportions of their incomes on soaring energy costs. “Our analysis contributes to evidence that the economy matters for population health,” the researchers stated. “The mortality impacts of inflation and real-terms income reduction are likely to be large and negative, with marked inequalities in how these are experienced. Implemented public policy responses are not sufficient to protect health and prevent widening inequalities.”

 

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