Are you feeling the pinch of rising living costs? If so, you’re not alone. The cost-of-living crisis is hitting households across the UK, with prices for essential goods and services skyrocketing and wages struggling to keep up.
From rising energy bills to increasing food prices, many families are finding it harder and harder to make ends meet. But how long will this crisis last? And what can we do to weather the storm?
In this blog, we’ll explore the causes and consequences of the cost of living crisis and examine what the UK government is doing to help.
The cost-of-living crisis has been hitting UK households hard over the past few months, with the rising cost of essential goods and services eating away at people’s disposable income. From rising food prices to increases in energy bills, the cost-of-living crisis is affecting people from all walks of life, and many are wondering how long it will last.
What is the Cost-of-Living Crisis?
The cost-of-living crisis is when the cost of essential goods and services is increasing faster than wages and salaries. This means that people are having to spend more and more of their income on basic necessities, leaving them with less money for discretionary spending.
How is the Cost-of-Living Crisis Impacting UK Households?
The cost-of-living crisis is having a significant impact on UK households, particularly those on lower incomes. According to research by the Joseph Rowntree Foundation, over 14 million people in the UK live in poverty, and rising living costs make it even harder for them to make ends meet. Many families are having to cut back on essentials like food and heating, while others are being forced into debt to cover their basic living expenses.
The cost-of-living crisis has significantly impacted individuals’ disposable income, with many people seeing their spending power decrease over the past year. According to the Office for National Statistics, the average household disposable income in the UK fell by 1.7% in 2020, the biggest annual fall since the financial crisis in 2008. This is primarily due to rising prices for goods and services and stagnant wage growth.
In Response to These Challenges, the UK Government has Implemented Several Support Measures:
- Energy Bill Rebate Package: A £15 billion package provides a £400 grant to all domestic energy customers in Great Britain to help with energy bills. Additionally, households in Council Tax Bands A-D in England receive a £150 Council Tax Rebate.
- Cost of Living Payments: More than 8 million households on means-tested benefits are receiving a total of £650 in two lump sums. Additionally, there are £300 Pensioner Cost of Living Payments for over 8 million pensioner households and a £150 Disability Cost of Living Payment for six million people with disabilities.
- Household Support Fund: This £1 billion fund assists households not eligible for other support types, covering essentials such as food, clothing, and utilities.
- Tax and Duty Adjustments: The National Insurance starting threshold was raised to £12,570, providing tax relief for 30 million workers. The government also cut Class 2 NICs for lower-earning self-employed individuals and reduced the Universal Credit taper rate from 63% to 55%, increasing work allowances by £500 per annum.
- Fuel and Alcohol Duty Freezes: A 12-month cut in fuel duty for petrol and diesel was implemented, along with a freeze on alcohol duty rates for 2022-23.
- National Living Wage Increase: The National Living Wage was increased by 6.6% to £9.50 per hour for workers aged 23 and over, benefiting more than 2 million workers.
- Energy Bill Rebates and Winter Fuel Payments: Low-income households receive rebates on their energy bills, and there are specific payments for households with someone of State Pension Age or over 80 to help with winter fuel bills.
- Cold Weather Payments and VAT Relief for Energy Saving Materials: Poorer households receive additional payments during extremely cold weather, and there’s a VAT relief for households installing energy-saving materials.
Despite these measures, challenges persist. The UK economy is facing a moderate recession in 2024, with no immediate prospect for tax cuts or increased public spending. The energy crisis has been largely brought under control, with the Energy Price Cap expected to fall further, reflecting recent drops in wholesale energy prices. However, energy costs remain significantly above pre-pandemic levels.
While the UK government has introduced various measures to mitigate the impact of the cost-of-living crisis, many households continue to face financial challenges. The situation is gradually improving, but it remains a complex issue requiring ongoing attention and support.
What is Inflation?
Inflation is the rate at which prices for goods and services increase. When inflation is high, it means that the cost of living is rising faster than wages and salaries, leading to a decrease in people’s purchasing power.
Inflation, a key factor in the cost-of-living crisis, remained at 6.7% in September 2023, significantly above the Bank of England’s target of 2%. This high rate has continued to keep the cost of goods and services elevated, straining many households. Contributing factors include rising oil prices and a weakening job market, although there has been some positive news with average wage growth outpacing inflation for the first time in two years.
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