The cost of living crisis

1 Jun 2022 Nick Garbutt    Last updated: 1 Jun 2022

Pic: Pixabay

The cost of living crisis is causing devastation for the least well off.

Before it struck Britain’s welfare system was already deficient. Years of austerity coupled with barely disguised contempt for those who struggled to get by had seen to that.

A country that used to pride itself on providing a safety net for the vulnerable had turned its back.  So when banking systems all but collapsed as a result of deregulation permitting speculation on derivatives which in turn were backed by cheap mortgages issued to people of dubious credit worthiness, it was not those culpable who were forced to pick up the tab.

They continued to enrich themselves. Instead we were told that what was needed most was a good strong dose of austerity. In practice that meant cutting benefits and other supports to the vulnerable.

At the time, and to its shame, the media bought into this and didn’t ask awkward questions. If they had they would have discovered that far from helping revive economies it has the opposite effect. Indeed every country that introduced significant austerity has seen its economy suffer, with the depth of the suffering closely related to the harshness of the austerity

In the interim we've learned the hard way that poverty actually kills. 

The British government’s response was one of the most severe and although it did not fix the economy it did succeed in reversing what had been steady progress in increasing life expectancy, creating the necessity for foodbanks and ensuring that many in employment became reliant on welfare to survive.

And when the war in Ukraine inflation which was already spiralling was suddenly boosted still further by steep rises in energy costs.

By March Richard Walker, managing director of frozen food stores Iceland, was telling BBC Radio 4 that  families using food banks to keep themselves fed were having to leave root vegetables such as carrots and potatoes behind because they could not  afford to cook them.

Last week Chancellor Rishi Sunak unveiled his latest rescue package.

It needed to work, especially given the torrid time Sunak has had of late, what with his wife’s tax status and his (presumably) unwanted prominence in the Sunday Times Rich List.

And close analysis suggests that it is not just smoke and mirrors, but a serious effort, which may well make a difference for millions.

The total package of £15 billion is almost twice what was announced, and found wanting, earlier in the year. Of this twice as much will go to households who are in the bottom half in terms of income as opposed to the top. This means that all measures announced to date offset 82% of energy cost rises, rising to 90% for poorer households, according to think tank the Resolution Foundation.

It adds: “Because 2022-23 has also seen major tax rises for higher income households, the effect of all tax and benefit policies coming into play this year is highly progressive: households in the bottom quintile will gain on average £1,195, compared to £799 for households in the middle quintile, while the top quintile on average loses £456.”

The fact that the Chancellor is paying the bulk of this in on-off payments rather than introducing rises in benefits, also helps speed the process up. It is also £1 billion more generous than simply bringing forward to October the 9.5 per cent benefit uprating expected next April.

The sheer scale of the intervention also reflects expected further sharp rises in energy prices in what is universally expected to be a grim and testing Autumn.

The additional measures include:

  • Payments of £650, made over two lump-sum grants, to over 8 million households on means-tested benefits;
  • An additional £300 on top of the usual Winter Fuel Payment this winter, going to all pensioner households;
  • An additional £150 to around 6 million people who receive a disability benefit;
  • Doubling the discount on all households’ electricity bills due this autumn to £400, and:
  • An additional £500 million for the Household Support Fund from October 2022.

Average gains for households are as follows:  £823 for the poorest fifth of households, compared to £500 for the middle fifth of households, and £296 across the richest fifth.

This contrasts with February’s controversial package which saw gains spread much more evenly across households at £296, £289 and £259.

Tax rises, introduced last month,  are also progressive meaning that the average cash gain to households when you take all measure together  in the bottom quintile is £1,195, compared to £799 for households in the middle quintile. Households in the top quintile are set for an average cash loss of £456.

All in all then a good package, which will be partly funded by a windfall tax on energy firms’ profits.

There are, however several problems which remain.

The absolute desperation that so many found themselves in when inflation hit at a time when household budgets were not able to cope with existing costs is the most worrying.

It demonstrated just how vulnerable poorer people are. The safety net which welfare is supposed to provide is not adequate to cater for the most basic needs.

What was really required was not just a one-off package, no matter how generous, but a reversal of the welfare policies that have become fashionable over the past decade or so.

These are based on ideas which are rooted in America, that the poor and vulnerable are somehow culpable for their own plight and that any benefits provided by the state should be the bare minimum for their survival.

And there should also be a rigorous examination of the energy industry and how it is regulated. These assets used to be publicly owned and for a very good reason.

The reason why oil and gas companies are having such a bumper time when so many are suffering is because of how the investment markets work. They don’t look at the actual amount of profit, rather they measure profit as a percentage of sales the resulting calculation constitutes the profit margin.

So therefore prices don’t just go up because the fuel is more expensive to buy they are also increased by the relevant profit margin. Hence when SSE CEO Alistair Phillips-Davies , who earned 1.6 million in 20/21 was asked about how people should cope with rising prices he did not offer to lower bills, instead he said people should: try “having a cuddle with your pets”, eating “hearty bowls of porridge” and “doing a few star jumps”.

A system that determines prices and measure performance to please investors is not one which necessarily suits the needs of people who can’t even afford to light the cooker.


The opinions, views or comments in this article do not necessarily reflect any views or policies of NICVA.

Join the Conversation...

We'd love to know your thoughts on this article.
Join us on Twitter and join the conversation today.

Join Our Newsletter

Get the latest edition of ScopeNI delivered to your inbox.