spring statement failed Highest level of inflation in a generation. Despite the measures announced on the same day, the NEF found 23.5 million people will not be able to afford living expenses.
In the month since, things have gotten worse. IMF cuts UK GDP forecast From 4.7% to 3.7%, making it the slowest growth forecast in the G7.this Bank of England also warns The number of customers delinquent on their loans increased in the coming months. Simultaneously, Retail sales have fallen and consumer confidence fell to Lowest point since financial crisis. Perhaps most shockingly, one in 10 parents say they are now likely to use a food bank in the next three months. Government policies have failed to support both household income and the wider economy.
but High inflation driven primarily by fuel and energy prices will not affect everyone equally. The new NEF model shows that, on average, rising prices push up the cost of a basket of essential goods and services (under the Minimum Income Standard (MIS), determined by Social Policy Research Center) £2,300 per annum. The cost of income for the poorest half of households increased nine times as much as for the richest 5 percent of households (see Figure 1 below). Even for households in the middle of the income distribution, the increase in costs is six times higher than for the top 5 percent of households.
Different demographics are also affected differently. As part of income, single women and Black, Asian, or Other Ethnic Minority (BAME) households cost 50 percent more than male and white households, respectively. The average cost for a single woman would increase by £1,400 (6% of income), while the average cost for a single adult male household would be £1,110 (4% of income) (Figure 2 below). The cost of living for white families increased by an average of £2,200 (5% of their income), while the cost of living for BAME families increased by £2,900 (8% of their income).These results partly reflect pre-existing gender and racial inequalities, such as those that lead to The pay gap in the labor market and Unequal parenting responsibilities.
In the spring statement, instead of announcing short-term support for those most in need through the Social Security system, or A major investment in an insulated home To help people in the long term, the chancellor has proposed regressive tax cuts that are not well-targeted. Our analysis found that the top 5% of households will receive an extra £600 a year as a result of fuel tax cuts and higher national insurance thresholds. The poorest half of households will only gain £300 on average.
These poorly targeted policies have failed to support the families most affected by the crisis. For everyone outside the top 5% of households, price increases will outweigh any net income increase (below) following policy changes (including tax changes, council tax bracket rebates and loans on energy bills) and wage increases that take effect in April 2022. Figure 4).
The poorest will be worst affected, with an effective squeeze of more than 10% on disposable income (£1,500, Figure 3 below). Middle-income households are also newly in crisis in unprecedented numbers. An additional 2.2 million people in 900,000 households will earn less than MIS in 2022 compared to 2021, despite these households earning an average of £33,000 from work before tax. Many of these families will make routine sacrifices on necessities like household bills, changing clothes or going to the dentist for the first time.
Our research shows that both the cost of living crisis and the policy response to date will deepen inequality in the UK. While wages for the highest earners will outpace cost growth, the poorest will struggle to pay up to 10% of their incomes to cover rising prices for essential goods.For many, this has proven Can not afford. This crisis will exacerbate the inequalities experienced by women and BAMEs, and those newly caught up are mainly working families with decent incomes.
We urgently need a new form of income support to ensure families are not pushed deeper into poverty. Poverty limits people’s freedoms, limits educational and health outcomes, and exacerbates the imbalances in our economy.A sort of living income will free society from this inequality, creating a fairer society while reducing the risk of recession.
But the importance of universal credit and estate benefits has been largely ignored by politicians, despite calls for emergency budget. Our social safety net is an important economic lever.By stabilizing income at the right pace, any recession can be automatically smoothed and any associated difficulties are reduced. All signs are that our economy is faltering. Now is the time to act.
picture: iStock
