Currently, working and retired people’s incomes are not rising with the rate of inflation in the United Kingdom. This month inflation has now increased to a 9.1% increase on last year, which is the highest rate for 40 years.
This week The Guardian calculated that ‘real incomes’ will drop 4.1% this year, when inflation has been taken into account. (1)
This means the cost of nearly all the goods and services that we buy has gone up. At the same time we are taking home relatively smaller pay packets. This squeeze on household budgets is called the ‘cost of living crisis’.
The cost of living crisis is affecting most families in England, Scotland, Wales and Northern Ireland and also some other countries around the world too.
When non-essential bills such as clothes, transport and recreation is added NIESR National Institute of Economic and Social Research (NIESR) shows “total bills are higher than income for 60% of society.” (2) (3)
“The combination of shocks – Brexit, Covid-19 and the recent shocks to energy prices (partly caused by the Russian invasion of Ukraine) is set to leave the real incomes of people in the UK permanently lower.” This is because “higher domestic inflation directly reduces real disposable incomes, consumption and therefore GDP” (4)
The economic outlook is challenging and tackling these financial issues will be a top priority for the newly elected conservative Prime Minister (either Rishi Sunak or Liz Truss) and their team of ministers in Westminster in London this Autumn. “The UK’s rate of inflation is expected to reach at least 11 per cent later this year, according to the Office for National Statistics. (5)
Prime Minister Boris Johnson’s cabinet are proud of their focus on generating jobs and they are all keen to highlight the positive news of the current 75% employment rate across the UK. (5)
However, although we have quantity, the quality of the jobs that are available varies enormously in this country’s heavily service orientated economy. There are advantages and disadvantages of the now popular (mostly with employers) zero hours contracts. Our manufacturing industry is relatively small compared to other European countries like Germany and the UK has a slightly declining Gross Domestic Product which will make growth harder to achieve.
Businesses can’t recruit more staff, give pay rises or retain highly skilled people if they experience a drop in sales due to falling demand. “2022 is likely to see the biggest drop in living standards on record.” This will mean there is less money in the economy to ‘go around’ and support companies like restaurants and hairdressers that rely on the local community having disposable income. (6)
“The OECD expects Britain’s economy to perform worse next year (zero per cent GDP growth) than that of any other developed country except for sanctions-hit Russia.” (6)
During the pandemic the Chancellor Rishi Sunak borrowed swiftly to keep the economy ticking along as smoothly as possible during a time of unexpected interruption and disruption. This was somewhat achievable at a time of low interest rates. This year interest rates have risen globally so it has cost the government more than last year to borrow a similar amount of money.
“The £22.9 billion borrowed in June 2022 was £4.1 billion more than in June 2021 and £15.6 billion more than in June 2019, pre-coronavirus” This funding is used to provide public services and benefits which is positive for the millions of families that receive some sort of help from the government. (5)
The UK’s massive levels of national debt at this current time prevent the government from just continuing to borrow more money to ease the cost-of-living pressure for that hardest hit by price rises. However, there are plans being made at this time to continue to support those on government pensions and benefits as we head into an uncertain winter financially.
Many households received £650 last week to help them ahead of rising fuel bills predicted to increase again this Autumn. This is a big step in the right direction but also a ‘something rather than nothing’ payment for adults hardest hit by the economic squeeze.
On Radio 4’s ‘You and Yours’ programme on Friday it was reported that many low-income households would not be in a position to spend this payment on fuel cost rises this Autumn. This is because they have debt and bills already outstanding. For example school uniforms that are needed to be purchased for September were higher up on the priority list for many families, who have a very limited amount of expendable income after paying their basic housing costs each month.
(1) ‘How the cost of living crisis is hammering UK households – in charts’ Niels de Hoog, Ashley Kirk, Hilary Osborne, The Guardian, Tuesday 21 June 2021 (1) ‘How the cost of living crisis is hammering UK households – in charts’ Niels de Hoog, Ashley Kirk, Hilary Osborne, The Guardian
(2) Resolution Foundation Living Standards Report March 2022 (2) Resolution Foundation Living Standards Report March 2022
(3) NIESR National Institute of Economic and Social Research (NIESR) Economic Outlook Report An independent research institute May 2022 NIESR National Institute of Economic and Social Research (NIESR) Economic Outlook
(4) ‘Jubilees compared: incomes, spending and work in the late 1970s and early 2010s’ Institute for Fiscal Studies, Jonathon Cribb, Paul Johnson, Robert Joyce, Zoe Oldfield 2012 ‘Jubilees compared: incomes, spending and work in the late 1970s and early 2010s’ Institute for Fiscal Studies, Jonathon Cribb, Paul Johnson, Robert Joyce, Zoe Oldfield
(5) ‘Borrowing in June 2022’ Office for National Statistics UK Government ‘Borrowing in June 2022’ Office for National Statistics, UK Gov