A new study has found that UK households are almost £3,000 worse off than they would have been had the cost-of-living crisis not occurred. The Resolution Foundation said the UK had suffered the equivalent of 13 years of “normal” inflation in just five years, due to the fallout from the pandemic and wars in Ukraine and the Middle East.
Experts at the think tank concluded that had inflation been at normal levels over this period, the average household would be £2,900 better off than they currently are. The report highlighted rising energy costs as the epicentre of the price shock.
Poorer families hit hardest
James Smith, chief economist at the Resolution Foundation, said: “While the hit to incomes from rising prices has been felt right across the board, the hardship has not been equally shared. It is poorer families who have cut back hardest on heating and are falling behind fastest on essential bills, and the conflict in the Middle East is set to keep energy prices high.”
The think tank found families had responded to rising energy costs by heating their homes less, with 1.7 million more households saying they were unable to keep warm enough in 2022/23 compared with the previous year. The proportion of poorer households failing to keep up with priority bills such as energy, water, council tax or rent has almost doubled since 2020, with 18% saying they were in arrears in March this year.
Budget pressure mounts
The Resolution Foundation study comes as Chancellor John Healey prepares his first Budget, in which he will face pressure to provide additional support with the cost of living following Andy Burnham’s pledge to provide “breathing space” for families. The former Defence Minister also faces a squeeze on public finances, with the Iran war and a global bond sell-off driving up borrowing costs.
Mr Smith said cost-of-living help was needed “just when the public finances leave less room than ever to provide it”. However, he cautioned against a Liz Truss-style universal package of support, adding: “The Government can’t borrow its way out of this, and repeating the expensive blanket support of 2022 isn’t an option. Any new help must be squarely targeted at the poorer families facing the greatest hardship – starting with their energy bills.”
Calls for a proper plan
Green MP Hannah Spencer said bills were still going up despite Mr Burnham’s promise of “breathing space”, with predicted increases in January set to be “the final straw for too many people”. She said: “The Budget will fail families unless we start to see a proper plan to address the cost-of-living crisis. This means moving more costs off energy bills, properly funding a national home insulation scheme, clamping down on huge profiteering by energy companies and rapidly scaling up cheaper, cleaner energy.”
