Ahead of the Spring Statement, Naveed Hakeem of the WISE Centre for Economic Justice argues that the rising cost of living in the UK continues to demonstrate the urgent need for reform of social and economic policy.
The cost of living in the UK is growing faster than at any point in recent history. UK inflation is at 5.5% and is predicted to rise above 8% later this Spring, the highest it has been since 1992[1]. The energy price cap has recently risen by 54%, translating to an annual average increase of £693 in energy bills for those on default tariffs paying by direct debit[2], average house prices in the UK increased by 10.8% in the year to December 2021[3], and increases in National Insurance and changes in income tax are estimated to cost the average UK household £600 or 1.4% of disposable income in 2022/23[4]. The Centre for Economic and Business Research have estimated that cumulatively this will see a drop in average disposable incomes of 4.8% in 2022 with a further drop of 1.4% in 2023, the equivalent of £2,553 per household in 2022[5].
Recent coverage of the macroeconomic conditions that will see UK disposable incomes face their biggest fall since records began in 1955 has often failed to show that this is part of a broader and more relative macroeconomic decline that has been taking place in the UK since the Global Financial Crisis in 2007/8. The fall in living standards did not come out of nowhere, the 15 years from 2007 to 2022 have been the worst on record for household income growth[6]. GDP per capita in the UK is only 5.5% higher in 2021 than it was in 2007, which is an annualised growth rate of less than 0.4%[7]. Gains in GDP per capita were negatively impacted by the financial crisis, during the austerity period, following the Brexit referendum, and during the pandemic. This is compounded with declining UK purchasing power due to depreciations in Sterling during the financial crisis and after the Brexit referendum. There have been calls to avoid the term cost of living ‘crisis’[8] as it focuses on the costs of essentials as opposed to the squeeze on incomes, as wages fail to keep up with prices. It also detracts from the responsibility of policy makers who have overseen a period of a restructured and less generous welfare system, sluggish GDP per capita growth, and equally sluggish productivity, wage and household income growth. Society has also become more unequal with a gradual redistribution of income towards the top 1% of earners, with evidence showing that this has had a negative impact on median wage growth[9]. With many economists pointing to low demand due to the financial crisis, austerity, and Brexit, as major contributing factors to the weak performance of the UK economy since 2007/8[10]. Rachel Reeves, the Labour MP and Shadow Chancellor of the Exchequer, previously an economist for the Bank of England, stated in a recent speech that Britain has experienced a lost decade, pinpointing weak UK growth as an influential factor to the fall in standards of living[11].
Headline statistics however relevant can often mask the disproportionate impact of the fall in living standards on low income households, those unable to work, and women, with research showing that more than half of the 5.7 million people on Universal Credit throughout the UK are going without at least one absolute essential needed to stay warm, fed, and clothed[12]. Gender inequality impacts accessibility to the labour market and income distributions, the uneven distribution of unpaid care results in women having more sporadic work profiles and a higher concentration in precarious employment, with research showing that the decade of austerity in the UK exacerbated the deeply entrenched nature of women’s poverty[13] these factors have again been amplified by the Covid-19 pandemic, and the policy response[14]. Data shows that across a range of sectors low paid roles continue to be predominantly done by women, with a fifth of women in work being paid below the living wage[15]. If these inequalities are not addressed many people will face being plunged even further in to poverty. It has already been shown that measures proposed in the 2021 Autumn budget are estimated to result in the poorest fifth of people in the UK with £380 a year less on average[16], and the UK is the only G7 nation to raise taxes as the cost of living soars[17].
The work of the WiSE Centre for Economic Justice has always strived to demonstrate and raise awareness of the clearly gendered and unequal impact of economic and social policy in the UK, making the case for the urgent need for reform, and this objective is now more important than ever. The cost of living ‘crisis’ must be reframed to recognise the policy failures to date and to create a degree of accountability for the lack of sustainable economic growth and worsening of inequalities. Ahead of the spring statement later this month, the clear and pivotal role for economic and social policy to advance living standards, principally for women, those at the lower ends of the income distribution, and those unable to work, cannot be understated.
[1] https://cebr.com/reports/daily-express-uk-recession-warning-brits-face-eye-watering-2-5k-hit-as-putins-war-could-tank-economy/
[2] https://www.ofgem.gov.uk/publications/price-cap-increase-ps693-april
[3] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/december2021
[4] https://researchbriefings.files.parliament.uk/documents/CBP-9428/CBP-9428.pdf
[5] https://cebr.com/reports/daily-express-uk-recession-warning-brits-face-eye-watering-2-5k-hit-as-putins-war-could-tank-economy/
[6] https://www.resolutionfoundation.org/publications/are-you-better-off-today/
[7] https://mainlymacro.blogspot.com/2022/02/we-are-in-unprecedented-era-of-uk.html
[8] https://www.newstatesman.com/comment/2022/02/why-we-should-stop-calling-it-the-cost-of-living-crisis
[9] https://cep.lse.ac.uk/pubs/download/dp1246.pdf
[10] https://voxeu.org/article/uk-productivity-puzzle-cfm-survey
[11] https://labour.org.uk/press/rachel-reevess-speech-setting-out-labours-plan-for-a-stronger-economy/
[12] https://www.trusselltrust.org/wp-content/uploads/sites/2/2022/03/The-true-cost-of-living-executive-summary.pdf
[13] https://wbg.org.uk/blog/the-ideological-dangers-of-austerity-and-why-women-are-bearing-the-brunt-of-it/
[14] https://www.rivisteweb.it/doi/10.1429/100367
[15] https://www.livingwage.org.uk/news/cost-living-crisis-affecting-women
[16] https://wbg.org.uk/wp-content/uploads/2022/03/Social-security-and-gender-PBB-Spring-2022.pdf
[17] https://www.independent.co.uk/news/uk/politics/national-insurance-sunak-mcfadden-ifs-b2037508.html
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