In this piece, Yasmin Begum of the National Centre for Social Research (NatCen) shares new findings published as part of NatCen’s annual Society Watch.
It has now been more than two years since inflation breached the UK Government’s two per cent target, and since the end of the recent pandemic, the cost-of-living crisis has been impacting a number of people. The crisis has been created and exacerbated by a number of social, economic, and political issues in and outside of the UK. One issue that arose was as the world began to recover from the COVID-19 pandemic, prices started rising sharply and the invasion of Ukraine by Russia accelerated inflation, which resulted in a sharp drop in living standards, particularly for poorer people. The Office for Budget Responsibility (OBR) forecasted a 5.7 per cent fall in UK living standards between 2022 and 2024 – the biggest two-year fall since the 1950s. Another issue was that the crisis came after a period of persistent poverty where poverty rates in 2021/22 were 22 per cent after housing costs – as high as they have been for the past 20 years, and this followed by the COVID-19 pandemic, dealt a blow to people’s finances, physical and mental health.
Consumption and behaviour changed, with people buying less healthy food, eating out less, and cutting back on their social lives, according to NatCen Panel data, with men more likely to be cutting back than women in many cases. At the end of May, 95 per cent of people said their cost of living had risen in the previous year, and 67 per cent said it had done so over the past month. The response to these rising costs were more varied: while 65 per cent of people said in early June that they were spending less on non-essentials, less than 50 per cent reported shopping around more or cutting back on food or essentials. The proportion cutting back on non-essential travel has actually fallen (in line with fuel prices). Other data shows restrained spending on home improvements and eating out, but a surge in spending on overseas travel.
However, for a substantial minority, the crisis is already biting much harder. Food bank use has increased by 50 per cent compared to the pre-pandemic period. Surveys last winter found that 13 per cent had skipped meals and eight per cent had gone hungry in recent months, and one in five adults reported having trouble keeping warm.
Joseph Rowntree Foundation (JRF) research has shown how the poorest households have been hardest hit. One third of the 40 per cent lowest income households had gone hungry in May 2023, and almost half had reduced or skipped meals. Poverty rates were seen to be higher for households with children, without anyone in work, in rented accommodation, and which include a disabled person, and were particularly high for Bangladeshi, Pakistani and Black minority ethnic groups.
NatCen Panel data showed that despite the UK Government’s support for energy bills mitigating some of the impacts of rising prices, 90 per cent of participants had turned heating down or off, and 86 per cent had reduced electricity use in January 2023. Focusing just on age groups suggests that measures were more common in people aged 18-49. However, regression analysis shows that, after controlling for demographics, income, employment, and parental status, participants aged 60 and over were twice as likely to reduce their electricity use as those aged 29 and younger.
The seeds of these different experiences may have been sown during the COVID pandemic. While some people saved money during the pandemic, low financial resilience increased from 20 to 24 per cent of adults during the course of the pandemic. For some people, lockdowns and furlough had been a chance to pay off debts and build savings. The proportion of adults with £10,000 or more in savings rose from 38 to 42 per cent between 2020 and 2022, while those with unsecured debt fell from 35 to 30 per cent. However, the growth in savings and fall in debt was most dramatic for higher income households. For those with an annual household income of less than £15,000, debt levels stayed the same, and savings shrank.
Data from NatCen’s regular panel surveys shows the impact of this. People who were finding life ‘very difficult’ financially were 35 times more likely to have built up arrears on household bills than those ‘living comfortably’ – and it is the people that went into the pandemic at most risk of arrears, who have the highest vulnerability now.
While consumption patterns have not changed dramatically over the past year, and only a small minority have taken on more work, there has been a more noticeable change in saving and borrowing. Almost two thirds, 63 per cent of regular savers from the NatCen Panel participants, were cutting down on their saving habits at the beginning of the year, with young middle-aged people (30- to 49-year-olds) and Black people particularly likely to be doing so. The Office for National Statistics (ONS) surveys also found 32 per cent of people were drawing down savings in early June 2023 to meet rising living costs, compared to 21 per cent a year earlier.
People are borrowing more too – 25 per cent of people said that they had increased the use of credit in year to late May 2023, compared to 21 per cent in late May 2022. For low-income households, borrowing options are limited and pricey: JRF research showed that 22 per cent of these households owed money to a ‘high-cost credit provider’, such as a doorstep lender or payday lender, in May 2023.
All this suggests that the crisis, which is already biting for the most disadvantaged in our society, may yet spread wider as it runs longer. Rising interest rates will put a squeeze on mortgaged householders as fixed rate deals end, as well as lower-income households who are already resorting to credit. And as people save less, and draw down on existing savings, their ability to cope in the face of persistently rising prices will reduce.
The most disadvantaged have also seen the greatest effects on their mental health with ONS reporting that over a third of their interviews believe the cost-of-living crisis has had a negative impact on their mental health, with the greatest negative affect being observed in younger people from the most deprived areas in England. Research by NatCen also further confirmed this by finding that since before the pandemic, those aged below 50 saw the largest increase in the proportion of those feeling dissatisfied with their life, and 15 per cent increase in those who are finding it very difficult to manage financially. Trends from 2018 to 2023 showed a small increase in the consistently high levels of worry regarding money or debt but levels of worry regarding mental health and work-life balance rose significantly in 2022 and beyond. Nearly three quarters of NHS providers said they were seeing an increase in patients seeking help for mental health problems related to debt and poverty.
Whilst Society Watch shows that a lot is being done to understand the impact of the crisis and the needs of those most affected, it is evident more is needed. Historically, we know that the impact of periods of economic and social instability are long term and some of the biggest affects come into the light many years later. Even with intervention to mitigate the impact of the rapid rise in inflation – particularly for food and energy bills, citizens have still taken a hit to their standards of living. People are already spending less, saving less and borrowing more, and some of those who were left most vulnerable by the COVID pandemic are facing the toughest challenges. Even if inflation eases further in coming months, long-term action may be needed to prevent the short-term impacts of the cost-of-living crisis causing lasting damage to our health, economy and society.
About the author
Yasmin Begum is a Researcher within the Centre for Deliberation at the National Centre for Social Research (NatCen). She is a social and policy researcher who has experience in qualitative and quantitative projects within various research areas, which tackled complex and, at times, contentious policy and social issues including trade policy, genetic technology and homelessness.
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