United Kingdom cost of living crisis

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The UK cost of living crisis is an ongoing event starting in 2021, in which prices for many essential goods in the United Kingdom began increasing faster than household incomes, resulting in a fall in real incomes. This is caused in part by a rise in inflation in the UK, in addition to the economic impact of global issues including the 2022 Russian invasion of Ukraine and COVID-19 pandemic. The UK's cost of living is the most affected of advanced economies. While all in the UK are affected by rising prices, it most substantially affects low-income persons. The British government has responded in various ways, such as by making provision for a £650 grant for each of the UK's lower income households.

Definition[edit]

The Big Issue newspaper defines a cost of living crisis as "a situation in which the cost of everyday essentials like groceries and bills are rising faster than average household incomes."[1] The think-tank Institute for Government defines the UK's cost of living crisis as "the fall in real disposable incomes (that is, adjusted for inflation and after taxes and benefits) that the UK has experienced since late 2021".[2]

Causes[edit]

UK Consumer Price Index (CPI) & CPIH inflation, April 2012 to April 2022

Both global and local factors have contributed to the UK's cost of living crisis. According to Bank of England governor Andrew Bailey, about 80% of the causes driving the cost of living crisis are global.[3] These include the ongoing COVID-19 pandemic, an ongoing chip shortage, an energy crisis in 2021–2022, a supply chain crisis in 2021–2022[4] and Russia's invasion of Ukraine in 2022.[5] The UK was reported to be among the worst affected among the world's advanced economies. In 2021, the UK's inflation was less than that of the US, but high US inflation was not generally experienced as a cost of living crisis due to the stimulus cheques that had been distributed to American households.[6] Though in 2022 the cost of living crisis was also reported as being a global phenomenon, having impacts that include those living in the US,[7] across Europe,[8] and as risking an "apocalyptic" impact for those in the developing world.[9]

Causes unique to the UK include labour shortages related to foreign workers leaving due to Brexit, and additional taxes on households. Factors that have worsened the crisis since 1 April 2022 include Ofgem increasing the household energy price cap by 54%, an increase in National Insurance, and a rise in Council Tax.[1][3][10] Unemployed people in the UK receive lower fiscal support than the average for OECDcountries, and UK salaries have not risen substantially since the financial crisis of 2007–2008.[11] Insufficient long-term gas storage facilities resulted in the UK energy prices being overexposed to the market fluctuations.[12][13] Household income, whether from wages or benefits, has not generally kept pace with rising prices.[2][1][10] In April 2022, UK real wages fell by 4.5%, the sharpest fall since records began back in 2001.[14] By July 2022, inflation had risen to over 10%, the highest level in 40 years, and the Bank of England was forecasting it could reach 13% by the end of the year. Energy costs for the typical British household were expected to rise 80% from October 2022, from ₤1,971 to ₤3,549.[15]

Effects[edit]

Based on an Office for National Statistics (ONS) survey performed between 27 April to 22 May 2022, 77% of UK adults reported feeling worried about the rising cost of living, with 50% saying they worried "nearly every day". A separate ONS survey taken from 25 May to 5 June, found 52% of respondents had cut back on their energy use.[16] While rising prices have affected all social classes, the poor have been impacted the most.[10] According to a survey from the Food Foundation think tank published in February 2022, one million UK adults went a whole day without eating over the past month.[17] Inflation began rising sharply in 2021, affecting a wide range of goods and services. Transport costs have been especially affected, but also many others, including costs for food, furniture, household items, electricity and clothing.[10] The Financial Times reported in May 2022 that the crisis caused UK consumer confidence to fall to its lowest level since 1974.[18] In June, charities had reported the crisis is affecting people's mental health, with one publishing a survey where 9% of responding parents had said their children had begun self-harming.[19][20]

Responses[edit]

Government[edit]

A foodbank donation point, in Sainsbury's, Slough, UK (June 2022)

Early government responses to rising inflation included a 6.6% rise in the minimum wage, which was announced in 2021, and came into effect in April 2022. The UK government intensified its efforts to respond to the cost of living crisis in May 2022, with a £5bn windfall tax on energy companies to help fund a £15bn support package for the public. The package included every household getting a £400 discount on energy bills, which would be in addition to a £150 council tax refund the government had already ordered. For about 8 million of the UK's lowest income households, a further £650 payment was announced. Additionally, pensioners or those with disability would qualify for extra payments, on top of the £550 that every household gets, and the £650 they would receive if they had a low income.[10][21][22][23] In June 2022, business secretary Kwasi Kwarteng ordered an urgent review of the fuel market to complete by 7 July, to see if consumer prices are excessively high.[24] These measures have been called insufficient by many people and organisations, including outgoing Prime Minister Boris Johnson, with the Bank of England predicting that the UK will enter recession by 2023.[25][26]

After her appointment in September 2022, prime minister Liz Truss announced a multi-billion pound package (up to £150bn) of fiscal support for rising energy bills that would freeze household bills at £2,500. She ruled out introducing a new windfall tax.[27][28]

Civil society groups[edit]

Various campaigns, such as Don't Pay UK, have been established to encourage the government to implement further assistance.

Anti-hunger campaigner Jack Monroe has warned that the crisis could be fatal for some of the children of low income parents, and requested the government to increase benefits in line with inflation.[29] UK civil society continues to respond to the hardship caused by the cost of living crisis, such as by running foodbanks, though some foodbank managers report both extra demand but also lower levels of donations, as the crisis means some people who could previously donate can no longer afford to do so.[30][31] On 18 June 2022, thousands of workers marched to Parliament in London to demand further government action for the cost of living crisis.[32]

A campaign called "Enough is Enough" was organized by trade union leaders to fight the cost of living crisis. Its demands include a return to pre-April 2022 energy rates, a pay rise in real terms for public sector workers, a rise in the national minimum wage, a reversal of the National Insurance increase, and a ₤20 per week increase in Universal Credit payments. Within a few weeks of its August 2022 launch, almost 450,000 people had joined the movement.[33] It has also gained some high profile supporters, including the Mayor of Greater Manchester Andy Burnham and US Senator Bernie Sanders.[34]

Media response[edit]

The cost of living crisis has been noted by the media,[35] as well as workers unions, as one of the reasons for industrial action by staff in industries such as the railway strikes,[36][37] bus strikes[38][39] and action by Legal Aid lawyers.[40]

See also[edit]

Notes and references[edit]

  1. ^ a b c Wilson, Sarah; Westwater, Hannah (9 June 2022). "Five ways the cost of living is rising – and how to get help if you're struggling". The Big Issue. Archived from the original on 29 May 2022. Retrieved 12 June 2022.
  2. ^ a b Hourston, Peter (1 June 2022). "Cost of living crisis". Institute for Government. Retrieved 12 June 2022.
  3. ^ a b The Week Staff (17 May 2022). "How the UK's cost-of-living crisis compares with the rest of the world". The Week. Archived from the original on 17 May 2022. Retrieved 12 June 2022.
  4. ^ "In numbers: what is fuelling Britain's cost of living crisis?". the Guardian. 3 February 2022. Retrieved 11 September 2022.
  5. ^ "Cost of living crisis: How the war in Ukraine is eroding living standards in the UK". Sky News. Retrieved 11 September 2022.
  6. ^ Sherman, Natalie (14 June 2022). "Why is inflation in US higher than elsewhere?". BBC News. Retrieved 14 June 2022.
  7. ^ Stepek, John (11 February 2022). "The cost of living crisis is global – US inflation just hit another 40-year high". MoneyWeek. Retrieved 18 June 2022.
  8. ^ Frost, Rosie (11 May 2020). "Cost of living crisis: Italy, Germany and Ireland are the first to cut public transport prices". EuroNews. Retrieved 18 June 2022.
  9. ^ Tisdall, Simon (21 May 2022). "Apocalypse now? The alarming effects of the global food crisis". The Guardian. Retrieved 18 June 2022.
  10. ^ a b c d e Partington, Richard; Kirk, Ashley (3 February 2022). "In numbers: what is fuelling Britain's cost of living crisis?". The Guardian. Archived from the original on 3 February 2022. Retrieved 12 June 2022.
  11. ^ "Cost of living: Why are things so hard for so many people?". BBC News. 13 July 2022. Retrieved 11 September 2022.
  12. ^ Mathis, Will (27 July 2022). "UK Energy Bills Set to Peak Above £500 as Russia Cuts Gas". Bloomberg. Archived from the original on 27 July 2022.
  13. ^ Medlicott, Lauren Crosby (17 March 2022). "Fact or fiction: Is Putin to blame for the UK energy crisis?". Euronews.
  14. ^ Sillars, James (14 June 2022). "Cost of living: Inflation takes record bite from regular pay while jobless rate rises unexpectedly". Sky News. Retrieved 14 June 2020.
  15. ^ Kara Fox (31 August 2022). "'Starve or freeze to death': Millions of elderly Brits fear a grim choice this winter as costs spiral". CNN Business. Retrieved 31 August 2022.
  16. ^ Inman, Phillip (10 June 2022). "Rising cost of living a worry for 77% of adults in Great Britain, says ONS". The Guardian. Archived from the original on 10 June 2022. Retrieved 12 June 2022.
  17. ^ Butler, Patrick (7 February 2022). "1m UK adults 'go entire day without food' in cost of living crisis". The Guardian. Archived from the original on 7 February 2022. Retrieved 12 June 2022.
  18. ^ Chan, Wai Kwen (20 May 2022). "No easy solution to UK cost of living crisis". Financial Times. Archived from the original on 20 May 2022. Retrieved 12 June 2022.
  19. ^ Martin, Nick; Griffith, Ella (20 June 2022). "Cost of living: 'I can't take it anymore' – We asked Britons how the crisis is affecting them". Sky News. Retrieved 20 June 2022.
  20. ^ Ambrose, Tom (18 June 2022). "Children stressed and self-harming over UK cost of living crisis". The Guardian. Retrieved 20 June 2022.
  21. ^ The editorial board (27 May 2022). "A striking U-turn to alleviate the UK cost of living crisis". Financial Times. Archived from the original on 27 May 2022. Retrieved 12 June 2022.
  22. ^ Clinton, Jane (10 June 2022). "How will the £650 one-off payment be paid? If you should apply for cost of living support and who is eligible". iNews. Archived from the original on 10 June 2022. Retrieved 12 June 2022.
  23. ^ Thomas, Daniel (15 June 2022). "Millions to get first cost-of-living payment from 14 July". BBC News. Retrieved 15 June 2022.
  24. ^ Ford Rojas, John-Paul (12 June 2022). "Cost of living crisis: 'Urgent' review of fuel market ordered amid surging pump prices". Sky News. Retrieved 13 June 2022.
  25. ^ "Boris Johnson admits efforts to ease cost of living crisis not enough". the Guardian. 3 May 2022. Retrieved 19 August 2022.
  26. ^ "'Lost generation': small businesses folding across UK as energy bills land". the Guardian. 19 August 2022. Retrieved 19 August 2022.
  27. ^ Ward-Glenton, Hannah. "UK PM Truss to unleash billions to help with energy bills. But there are big questions over funding". CNBC. Retrieved 11 September 2022.
  28. ^ "Energy bills to be capped at £2,500 for typical household". BBC News. 8 September 2022. Retrieved 11 September 2022.
  29. ^ Butler, Patrick (9 June 2022). "Cost of living crisis could be fatal for some UK children, Jack Monroe tells MPs". The Guardian. Retrieved 13 June 2022.
  30. ^ Boneham, Isabella (28 April 2022). "Food banks in UK facing 'shocking' poverty levels and 'critical' demand as cost of living crisis bites". National World. Archived from the original on 28 April 2022. Retrieved 12 June 2022.
  31. ^ "Plymouth food bank donations squeezed by cost of living". BBC News. 13 June 2022. Retrieved 14 June 2022.
  32. ^ Sherman, Natalie (14 June 2022). "Workers take to London's streets amid cost of living crisism". BBC News. Retrieved 18 June 2022.
  33. ^ Robert Booth (24 August 2022). "Enough is Enough movement gathers pace with Andy Burnham latest backer". The Guardian. Retrieved 31 August 2022.
  34. ^ Kate Nicholson (08-18-2022). "Andy Burnham Set to Join Ranks of Workers' Campaign, 'Enough is Enough'". huffingtonpost.co.uk. Retrieved 2022-08-31. {{cite web}}: Check date values in: |date= (help)
  35. ^ Jones, Owen (24 May 2022). "Could strikes solve the cost of living crisis for Britain's workers". The Guardian. Retrieved 18 July 2022.
  36. ^ Moody, Kate (21 June 2022). "UK rail strikes put spotlight on cost of living crisis". France24. Retrieved 18 July 2022.
  37. ^ Pickard-Whitehead, Gabrielle (22 June 2022). "The summer of discontent? Why the cost of living crisis is causing so many strikes". The Big Issue. Retrieved 18 July 2022.
  38. ^ Saheed, Haleema (12 July 2022). "Arriva bus drivers set to strike again after latest pay offer rejection". Bradford Telegraph and Argus. Retrieved 18 July 2022.
  39. ^ "Yorkshire Service Disruption [Updated 13th July 2022]". Arriva Bus. Retrieved 18 July 2022.
  40. ^ Rielly, Bethany (31 May 2022). "Cost-of-living crisis a threat to legal aid access, lawyers warn". Morning Star. Retrieved 18 July 2022.

Further reading[edit]