Written by Findlay Main

What is the Cost of Living Crisis?

In simple terms, the “cost of living crisis” is referring to the drop in people’s “real” disposable incomes across the United Kingdom. This has been caused primarily by the rising rates of inflation, with most people’s wages not growing at the same rate. In practice, this means people have to pay higher prices for essential goods such as energy, rent, and food as they did last year, but with the same amount of money, meaning many people have had to cut down on the number of things that they buy. Inflation is currently at 9.9%, compared to being at less than 1% at this point in 2020. One of the main causes for the quick rise in prices is the war in Ukraine, with the cost of gas and oil growing significantly since the start of the conflict, as the UK looks to import less from Russia, meaning prices for other energy sources increase.

How bad is this compared to previous years?

The last notable time that the UK experienced inflation as high as it is now was in the 1970s and 80’s when it peaked at 24.2%. Although inflation is unlikely to reach levels that high, the knock-on effects may be just as severe. In the late 70s, the causes of inflation were similar, with a massive shortage of energy being the primary problem. In 1979, a three-day week was adopted across the country, with companies being unable to afford energy costs for five days. Blackouts were also frequent, with the worst period being known as the “Winter of Discontent”. Once again, this seems unlikely to happen again, but winter commonly puts a massive strain on the energy supply in the UK, and with the availability of gas being less secure, there may be noticeable disruption to the network.

Why is this leading to workers striking?

You may have noticed an increased frequency in the number of worker strikes you hear about – this is directly linked to the cost of living crisis. Most major industries which are essential to the functioning of the country, such as the rail and postal industries, have unions that represent their workers. These unions will campaign for better pay and working conditions for their workers, and will sometimes organise strikes to try and enforce this. As the cost of living crisis has reduced people’s “real” disposable incomes, several unions have demanded that their workers receive inflation-matched wage increases. For example, RMT, the main union for rail workers, is demanding a 7% pay rise. However, many rail companies and government officials oppose this, fearing that by handing workers a significant pay rise, inflation will continue to spiral. This disagreement has been consistent since the beginning of summer and has led to many notable strikes on the rail service and postal service in particular.

What has the government done to try and solve the crisis?

The government has taken some measures to try and reduce the impact of high inflation on people’s lives. The government is providing a £15 billion energy bill package, which is worth up to £550 per household. There will also be a further £650 payment for those on benefits. These payments directly help with extremely high energy bills, with hopes that they will make energy bills easier to pay through the winter. Furthermore, the new government has recently announced tax reductions for those across the country, with this move meaning that people’s disposable incomes are higher. However, this decision has been criticised, with many claiming that this will only increase the heavy government debt and that the policy is too lenient on the country’s richest, who suffer least from the crisis.

Will this get any worse?

Current projections suggest that inflation will likely peak near the end of this year at around 13%, meaning that the worst is yet to come for many. Furthermore, the government’s recent mini-budget has had a disastrous impact on economic markets and the value of the pound. This may prompt the Bank of England to increase inflation rates, meaning that many people’s mortgage payments will steeply increase, further contributing to the crisis. The conflict in Ukraine looks far from over and with winter just around the corner, there are few signs that the situation will improve in the short run. The Bank of England projects that inflation will likely not reach the 2% target until Autumn 2024.