2021–present United Kingdom cost-of-living crisis |
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Background |
Industrial action |
Since late 2021, the 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 both the UK and the world in general, as well as the economic impact of issues such as the COVID-19 pandemic, Russia's invasion of Ukraine, and Brexit. 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 grants, tax rebates, and subsidies to electricity and gas suppliers.
The Big Issue newspaper defines a cost-of-living crisis as "a scenario in which the cost of everyday essentials like energy and food is rising much faster than average 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]
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 various forms of instability the world has experienced in the early 2020s such as the COVID-19 pandemic, a chip shortage, an energy crisis, a supply chain crisis, [4] and Russia's invasion of Ukraine. [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] Researchers in the Centre for Economic Performance at the London School of Economics investigated trade flows and consumer prices of food products in the UK and found Brexit increased food prices due to increased red tape when food is imported from Europe. This affected poorer households disproportionately. [11] Unemployed people in the UK receive lower fiscal support than the average for OECD countries, and UK salaries have not risen substantially since the financial crisis of 2007–2008. [12]
Insufficient long-term gas storage facilities resulted in the UK energy prices being overexposed to the market fluctuations. [13] [14] Household income, whether from wages or benefits, have not generally kept pace with rising prices. [1] [2] [10] In April 2022, UK real wages fell by 4.5%, the sharpest fall since records began back in 2001. [15] 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, [16] until Liz Truss, who was Prime Minister at the time, announced measures to limit these increases.
On 23 September 2022, UK Chancellor Kwasi Kwarteng announced his mini-budget, backed by Truss, which included widespread tax cuts. The package included cuts to stamp duty and the abolishment of the 45% rate of income tax for those earning £150,000 or more a year. These cuts aimed to encourage foreign investment and economic growth but were not costed and spooked financial markets, causing the pound to fall to a low of $1.03. The Bank of England reacted by raising interest rates, causing mortgage payments to increase significantly. By late October 2022, Truss and Kwarteng had been replaced by Rishi Sunak and Jeremy Hunt respectively, and all of the mini budget's proposals had effectively been cancelled. The pound regained some strength by this point, but interest rates remained high,[ according to whom? ] stretching household incomes.[ citation needed ]
Based on an Office for National Statistics (ONS) survey performed between 27 April and 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. [17] While rising prices have affected all social classes, the poor have been impacted the most. [10] According to a survey by the Food Foundation think tank published in February 2022, one million UK adults went a whole day without eating over the past month. [18]
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. [19] 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. [20] [21]
On 10 November 2022, nurses and other medical personnel across the NHS voted to strike, under the Royal College of Nursing. The nurses stated this was due to failing wages, inflation, overwork, and underfunding. The industrial action affects NHS hospitals throughout the UK. Nurses are still expected to work certain days at reduced-capacity to ensure the NHS is still operational. [22] [23] [24]
The Office for National Statistics (ONS) stated on 11 November that business investment fell during the three months to September and was below the pre-pandemic levels. Gross domestic product fell during the three months to September due to a decline in manufacturing "across most industries" according to the ONS. [25]
On 8 December 2022 The Guardian reported that according to research by the Joseph Rowntree Foundation, over 3 million[ contradictory ] UK low-income households could not afford to heat their homes. According to the research by the foundation, roughly 710,000 households had difficulty paying for food, heating and warm clothing. The foundation urged the government to increase Universal Credit. A government spokesperson said that the support of the most vulnerable remains a priority and that millions of the most needy people are being given at least £1,200 in direct payments to protect them against rising prices in addition to the £400 being given to each household towards energy costs. The spokesperson said that the support also includes a winter energy price guarantee worth approximately £900 for a typical household and a household support fund to help people with essential costs and that the chancellor had announced further efforts to support those most in need next year. [26]
The ONS reported that in the year to September 2022 there was a 22% increase in shoplifting. In response to the problem, some supermarkets began to roll out new retail loss prevention systems, requiring customers to scan their printed receipt on an optical scanner as proof of purchase before they can exit the store. The systems have attracted some negative public reaction. [27] [28]
The Joseph Rowntree Foundation said their research showed that hundreds of thousands of households could not afford to protect themselves from cold and that prices of essentials were rising steeply with energy bills and were nearly double the level the previous winter. [26] A briefing from the Department of Health and Social Care (DHSC), detailing the plans they have made to take on thousands of volunteers to counteract staff shortfalls during the 2022/23 winter, included a warnings about the impact on hospital admissions that the cold weather, increased fuel prices, and cost of living might have, especially for the elderly. [29]
On 5 September 2023, Birmingham City Council, the largest local authority in Europe, issued a Section 114 notice declaring itself effectively bankrupt. [30]
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] [31] [32] [33]
In June 2022, business secretary Kwasi Kwarteng ordered an urgent review of the motor fuel market to complete by 7 July, to see if consumer prices were excessively high. [34] The measures were called insufficient by many people and organisations, including outgoing Prime Minister Boris Johnson, with the Bank of England predicting that the UK would enter recession by 2023. [35] [36]
Johnson's successor Liz Truss announced a package of subsidies for rising energy bills with an estimated potential cost of up to £150 billion, depending on future wholesale prices. [37] The main piece of this package was the Energy Price Guarantee, which would mean that a UK household with "average energy usage" would pay no more than £2,500 a year on energy, although this was widely misinterpreted as Truss stated in media interviews that "nobody would pay more than £2,500". She later clarified this, while ruling out introducing a new windfall tax on the profits of energy producers and suppliers. [37] [38] The subsidies were initially planned to last for two years for consumers and six months for businesses, but in October the new Chancellor Jeremy Hunt said that the package would continue until April 2023 and that from this date support would be targeted at "the most vulnerable." [39]
After his appointment as prime minister in October 2022 following Truss' resignation amid an economic and credibility crisis caused by the September 2022 mini-budget proposed by Truss and Kwarteng, Rishi Sunak continued the package of subsidies for rising energy bills. As chancellor, he provided some funding to help vulnerable people cope with the rising cost of living. [40]
In October 2022, the Scottish Government introduced an act to freeze rents and establish a moratorium on evictions in Scotland for both the private rented and social sectors.
Various campaigns, such as Don't Pay UK, were established to encourage the government to implement further assistance.
The campaigner Jack Monroe warned that the crisis could be fatal for some of the children of low-income parents, and asked the government to increase benefits in line with inflation. [41] 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. [42] [43] On 18 June 2022, thousands of workers marched to Parliament in London to demand further government action for the cost-of-living crisis. [44]
A campaign called "Enough is Enough" was organised by trade union leaders to lobby during the 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. [45] It gained some high-profile supporters, including the Mayor of Greater Manchester Andy Burnham and US Senator Bernie Sanders. [46]
In November 2023, The Trussell Trust calculated that a single adult in the UK in 2023 needs at least £29,500 a year to have an acceptable standard of living, up from £25,000 in 2022. Two partners with two children would need £50,000, compared to £44,500 in 2022. 29% of the UK population—which works out to 19.2 million people—belong to households that bring in below a minimum figure. [47]
The Green Party of England and Wales supports increasing Universal Credit and implementing a home insulation scheme to reduce energy use and cut fuel bills as part of its stance on the cost-of-living crisis. [48] It also supports lowering the costs of public transport, providing 35 hours a week free child care from the age of nine months and a pay increase for public sector workers to match inflation. [49]
The cost-of-living crisis has been noted by the media, [50] as well as workers' unions, as one of the reasons for industrial action by staff in industries such as the railway strikes, [51] [52] bus strikes [53] [54] and action by Legal aid lawyers. [55] In September 2022, the BBC soap opera Doctors began covering the topic in a long-running issue-led storyline featuring Scarlett Kiernan (Kia Pegg) and her father struggling to survive. [56] In October 2022, the BBC unveiled its new brand, Tackling It Together, designed to help consumers navigate the cost-of-living crisis. [57] [58]
The economy of the United Kingdom is a highly developed social market economy. It is the sixth-largest national economy in the world measured by nominal gross domestic product (GDP), Tenth-largest by purchasing power parity (PPP), and twenty-first by nominal GDP per capita, constituting 3.1% of nominal world GDP. The United Kingdom constitutes 2.3% of world GDP by purchasing power parity (PPP).
Poverty in the United Kingdom is the condition experienced by the portion of the population of the United Kingdom that lacks adequate financial resources for a certain standard of living, as defined under the various measures of poverty.
World food prices increased dramatically in 2007 and the first and second quarter of 2008, creating a global crisis and causing political and economic instability and social unrest in both poor and developed nations. Although the media spotlight focused on the riots that ensued in the face of high prices, the ongoing crisis of food insecurity had been years in the making. Systemic causes for the worldwide increases in food prices continue to be the subject of debate. After peaking in the second quarter of 2008, prices fell dramatically during the late-2000s recession but increased during late 2009 and 2010, reaching new heights in 2011 and 2012 at a level slightly higher than the level reached in 2008. Over the next years, prices fell, reaching a low in March 2016 with the deflated Food and Agriculture Organization (FAO) food price index close to pre-crisis level of 2006.
Mary Elizabeth Truss is a British politician who served as Prime Minister of the United Kingdom and Leader of the Conservative Party from September to October 2022. On her fiftieth day in office, she stepped down amid a government crisis, making her the shortest-serving prime minister in British history. The member of Parliament (MP) for South West Norfolk since 2010, Truss previously held various Cabinet positions under three prime ministers—David Cameron, Theresa May and Boris Johnson—lastly as foreign secretary from 2021 to 2022.
The United Kingdom government austerity programme is a fiscal policy that was adopted for a period in the early 21st century following the Great Recession. The term was used by the Coalition and Conservative governments in office from 2010 to 2019, and again during the 2021–present cost of living crisis. The two periods are separated by a stint of interventionist, Keynesian spending during the COVID-19 pandemic. The first period alone was “one of the biggest deficit reduction programmes seen in any advanced economy since World War II”, with the emphasis on shrinking the state rather than fiscal consolidation as was more common elsewhere in Europe.
Rishi Sunak is a British politician who has served as Prime Minister of the United Kingdom and Leader of the Conservative Party since 2022. The first British Asian prime minister, he previously held two cabinet positions under Boris Johnson, latterly as Chancellor of the Exchequer from 2020 to 2022. Sunak has been Member of Parliament (MP) for Richmond (Yorks) since 2015.
Food prices refer to the average price level for food across countries, regions and on a global scale. Food prices affect producers and consumers of food. Price levels depend on the food production process, including food marketing and food distribution. Fluctuation in food prices is determined by a number of compounding factors. Geopolitical events, global demand, exchange rates, government policy, diseases and crop yield, energy costs, availability of natural resources for agriculture, food speculation, changes in the use of soil and weather events directly affect food prices. To a certain extent, adverse price trends can be counteracted by food politics.
Events from the year 2022 in the United Kingdom.
A global energy crisis began in the aftermath of the COVID-19 pandemic in 2021, with much of the globe facing shortages and increased prices in oil, gas and electricity markets. The crisis was caused by a variety of economic factors, including the rapid post-pandemic economic rebound that outpaced energy supply, and escalated into a widespread global energy crisis following the Russian invasion of Ukraine. The price of natural gas reached record highs, and as a result, so did electricity in some markets. Oil prices hit their highest level since 2008.
Rishi Sunak served as Chancellor of the Exchequer of the United Kingdom from his appointment on 13 February 2020 to his resignation on 5 July 2022. His tenure was dominated by the COVID-19 pandemic in the United Kingdom, with Sunak becoming a prominent figure in the government's response to the pandemic, giving economic support to struggling businesses through various schemes. He was also involved in the government's response to the cost of living crisis, UK energy supply crisis, and global energy crisis.
A worldwide surge in inflation began in mid-2021, with many countries seeing their highest inflation rates in decades. It has been attributed to various causes, including COVID-19 pandemic-related economic dislocation, supply chain disruptions, the fiscal and monetary stimuli provided in 2020 and 2021 by governments and central banks around the world in response to the pandemic, and price gouging. Recovery in demand from the COVID-19 recession had by 2020 led to significant supply shortages across many business and consumer economic sectors. The inflation rate in the United States and the eurozone peaked in the second half of 2022 and sharply declined in 2023 and into 2024. Despite its decline, significantly higher price levels across various goods and services relative to pre-pandemic levels persist, which some economists speculate is permanent.
During 2022 and 2023 there were food crises in several regions as indicated by rising food prices. In 2022, the world experienced significant food price inflation along with major food shortages in several regions. Sub-Saharan Africa, Iran, Sri Lanka, Sudan and Iraq were most affected. Prices of wheat, maize, oil seeds, bread, pasta, flour, cooking oil, sugar, egg, chickpea and meat increased. Causes included disruption of supply chains due to the COVID–19 pandemic, an energy crisis, the Russian invasion of Ukraine, and significant floods and heatwaves in 2021 which destroyed key crops in the Americas and Europe. Droughts were also a factor; in early 2022, some areas of Spain and Portugal lost 60-80% of their crops due to widespread drought.
Don't Pay UK was a grassroots direct action campaign in the United Kingdom that urge collective non-payment of energy bills. They planned to begin non-payment on 1 October 2022, when regulator Ofgem's price cap was set to rise, if one million individuals had signed up. On this date, 200,000 individuals had pledged non-payment, and Prime Minister Liz Truss had set a lower price cap than projected, so the strike did not go ahead. On 1 December 2022, the group encouraged non-payment to begin.
Liz Truss's tenure as Prime Minister of the United Kingdom began on 6 September 2022 when she accepted an invitation from Elizabeth II to form a government, succeeding Boris Johnson, and ended 50 days later on 25 October upon her resignation. As prime minister, she served simultaneously as First Lord of the Treasury, Minister for the Civil Service, and Minister for the Union.
On 23 September 2022, the Chancellor of the Exchequer, Kwasi Kwarteng, delivered a Ministerial Statement entitled "The Growth Plan" to the House of Commons. Widely referred to in the media as a mini-budget, it contained a set of economic policies and tax cuts such as bringing forward the planned cut in the basic rate of income tax from 20% to 19%; abolishing the highest (45%) rate of income tax in England, Wales and Northern Ireland; reversing a plan announced in March 2021 to increase corporation tax from 19% to 25% from April 2023; reversing the April 2022 increase in National Insurance; and cancelling the proposed Health and Social Care Levy. Following widespread negative response to the mini-budget, the planned abolition of the 45% tax rate was reversed 10 days later, while plans to cancel the increase in corporation tax were reversed 21 days later.
Starting in May 2022, postal workers in the United Kingdom undertook a series of strikes and industrial disputes. They principally involved members of Unite and the Communication Workers Union (CWU) at both Royal Mail and the Post Office. The Royal Mail strikes ended in July 2023 after workers agreed to a three-year pay deal with Royal Mail.
The November 2022 United Kingdom autumn statement was delivered to the House of Commons on 17 November 2022 by Chancellor of the Exchequer Jeremy Hunt, after being delayed by three weeks from its original scheduled date of 31 October. The budget addressed the ongoing cost of living crisis, and saw the announcement of a five-year package of tax increases and spending cuts designed to steer the UK through recession. An economic forecast published on the same day by the Office for Budget Responsibility (OBR) stated the UK had entered a recession after experiencing two quarters of a shrinking economy, and predicted the UK's economy would shrink during 2023. A reduction in households' disposable income was also forecast.
The 2023 United Kingdom budget was delivered to the House of Commons on 15 March 2023 by Chancellor of the Exchequer Jeremy Hunt. It was the first full budget statement to be presented by Hunt since his appointment as chancellor. The date of the budget was confirmed by Hunt on 19 December 2022. At the same time he confirmed the budget would be accompanied by a full budget report from the Office for Budget Responsibility. The statement was presented as a budget for growth, with the objective of bringing about the conditions for long-term sustainable economic growth within the UK.
A cost-of-living crisis refers to a situation where the price of labour has not risen in line with the prices of essential items like food, housing, and energy. As a result, living standards are being squeezed to the point that people cannot afford the standard of living that they were accustomed to. The population becomes poorer than it used to be in real terms. This is in contrast to a situation in which wages are rising to meet the rate of inflation and workers' standard of living remains unchanged.
Jeremy Hunt has served as Chancellor of the Exchequer of the United Kingdom since his appointment on 14 October 2022. His tenure has so far been dominated by the cost of living crisis, and the global energy crisis. Hunt has served under two prime ministers during his tenure, Liz Truss until 25 October, and Rishi Sunak from 25 October.