# Analysis-‘Perfect storm’: Poor Britons caught in cost-of-living squeeze
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-11-01
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Britain Faces Deepening Cost-of-Living Crisis Amid Fallout
Meta Description: Rising costs across the board, from mortgage rates to grocery prices, are hitting everyone but impacting low-income families the hardest. Find out more here.
URL: https://financedigest.com/analysis-perfect-storm-poor-britons-caught-in-cost-of-living-squeezehtml

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By Hugo Greenhalgh

LONDON (Thomson Reuters Foundation) – Rising mortgage rates, fuel and grocery prices soaring, national insurance contributions going up and queues growing at charity food banks across Britain.

Add fallout from COVID-19 and Brexit, and economic and policy analysts say the world’s fifth-biggest economy faces a deepening cost-of-living crisis, despite measures in the government’s new budget aimed at softening the blow.

Everybody across the income spectrum in the UK is going to see increasing costs,” said Garry Lemon, policy and research director at the Trussell Trust, which supports more than 1,300 food [bank centres across Britain](https://www.financedigest.com/britain-urges-banks-to-offer-mortgage-flexibility-in-cost-of-living-crisis.html "Britain urges banks to offer mortgage flexibility in cost-of-living crisis").

“But if your income is extremely low, then these inflationary pressures … are particularly worrying and are going to have a huge, disproportionate impact on those at the bottom,” he told the [Thomson Reuters](https://www.financedigest.com/thomson-reuters-keeps-outlook-but-wary-of-slowing-economy.html "Thomson Reuters keeps outlook, but wary of slowing economy") Foundation.

[Inflation looks set to rise to 5% – more than double the Bank](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") of England’s 2% target. \[L8N2RS4BN\]

Rising living costs have been exacerbated by an increase in personal tax rates, driven by the government’s attempts to claw [back the costs of COVID-19 and fund long-term social](https://www.financedigest.com/uks-bellway-to-buy-back-shares-hike-social-housing-output.html "UK’s Bellway to buy back shares, hike social housing output") care.

We’ve hit a perfect storm for many people,” said Sue Weightman, project manager of the Trussell [Trust food bank](https://www.financedigest.com/how-can-banks-overcome-the-tech-trust-gap.html "How can banks overcome the tech trust gap?") in the town of Taunton, in western England.

(There are) just too many points of pressure [financially for people on benefits and also low-income families.”](https://www.financedigest.com/hodge-webinar-gives-insight-into-uncovering-family-finances.html "Hodge webinar gives insight into uncovering family finances")

[COVID has hugely exacerbated the situation](https://www.financedigest.com/who-urges-china-to-share-specific-data-regularly-on-covid-situation.html "WHO urges China to share specific data regularly on COVID situation").

Another [manager of a London-based food bank](https://www.financedigest.com/asset-managers-on-alert-after-whatsapp-crackdown-on-banks.html "Asset managers on alert after ‘WhatsApp’ crackdown on banks"), who asked not to be identified, said before the pandemic her centre saw between 80 and 120 families a month.

“Now we’re feeding up to 2,000 people a month, probably up to 2,500,” she said.

LEVELLING UP?

Levelling up” has been a central plank of Conservative government thinking, with a raft of measures [announced in last week’s budget designed to help address economic inequality across Britain’s regions](https://www.financedigest.com/adverty-and-yazle-announce-exclusive-in-game-ad-partnership-in-mena-region.html "Adverty and Yazle announce exclusive in-game ad partnership in MENA region").

But beyond [ambitious infrastructure](https://www.financedigest.com/after-long-drought-china-plots-ambitious-water-infrastructure-push.html "After long drought, China plots ambitious water infrastructure push") projects aimed at boosting local economies, concerns are growing about the personal tax burden, particularly on lower-income families.

Resolution Foundation, a think-tank, estimates that the tax burden on households by 2026-27 will be at its highest level since 1950 due to a combination of freezing threshold levels for [income tax and higher national insurance](https://www.financedigest.com/how-to-choose-the-best-income-protection-insurance.html "How to Choose the Best Income Protection Insurance") contributions.

That effectively increases the income tax people are paying over the [next four years](https://www.financedigest.com/novartis-to-spin-off-generics-business-sandoz-next-year.html "Novartis to spin off generics business Sandoz next year") up until 2025,” said Karl Handscomb, senior economist at the organisation.

According to the Foundation’s figures, this could mean as much as an additional 3,000 pounds ($4,103) – on average – in income [levies per household](https://www.financedigest.com/funds-from-electricity-levy-could-help-german-households-says-renewables-association.html "Funds from electricity levy could help German households, says renewables association") by 2026-27.

But it is not all bad news, particularly for lower-income families, Handscomb added.

On a sliding scale, the richest fifth of households are likely to [see their incomes fall](https://www.financedigest.com/uk-employers-see-slight-fall-in-pay-awards-over-2023-xperthr.html "UK employers see slight fall in pay awards over 2023 – XpertHR") by 3% because of the tax measures, middle-income families by 2% and poorest fifth of households by less than 1%.

But due to the changes announced in the budget to universal [credit – Britain’s main income-related benefit](https://www.financedigest.com/benefits-of-a-good-credit-score.html "Benefits of a good credit score") claimed by 4.4 million low-income families – poorer in-work households will see an income boost of around 3%.

Effectively, that’s giving away money to families who are in [work and on low](https://www.financedigest.com/low-use-of-shortened-work-hours-points-to-mild-german-recession-ifo.html "Low use of shortened work hours points to mild German recession – Ifo") incomes,” he said, adding that lower-income families will be 2.8% better off by 2025-26.

‘BIG SQUEEZE’

Fears are also mounting over the impact of the increase in more basic [costs of living](https://www.financedigest.com/malaysias-new-pm-anwar-says-first-priority-is-cost-of-living.html "Malaysia’s new PM Anwar says first priority is cost of living").

[Food and energy prices](https://www.financedigest.com/world-food-prices-hit-record-high-in-2022.html "World food prices hit record high in 2022") are rising, mortgage rates are going up and council tax, a local levy paid by every British household, is also likely to increase.

There are many factors at play, said Laura Suter, head of personal finance at investment platform AJ Bell, not least the likelihood of increased energy [costs as Britain](https://www.financedigest.com/britain-delays-major-rail-project-hs2-as-costs-soar-again.html "Britain delays major rail project HS2 as costs soar again") heads into winter.

(These) combined with the fact that we’re seeing a lot of the big household costs that normally people [pay for rising](https://www.financedigest.com/unicredit-shareholders-urged-to-reject-ceo-orcels-pay-rise.html "UniCredit shareholders urged to reject CEO Orcel’s pay rise"), (means) a lot of families are going to feel a very big squeeze over the next few months,” Suter said.

Energy consultancy Cornwall Insight estimates that energy prices will rise by 30% from [next April for the average household that consumes](https://www.financedigest.com/britains-next-sees-lower-profit-in-2023-as-consumer-outlook-darkens.html "Britain’s Next sees lower profit in 2023 as consumer outlook darkens") both natural gas and electricity.

With further rises expected in inflation combined with sluggish pay growth, the Institute for Fiscal Studies (IFS) think-tank has [warned of stagnating living standards over the next five years](https://www.financedigest.com/eu-could-face-gas-shortage-next-year-iea-warns.html "EU could face gas shortage next year, IEA warns").

“Average … wages have basically stagnated [since](https://www.financedigest.com/sentiment-in-uk-finance-falls-at-fastest-pace-since-2019-survey.html "Sentiment in UK finance falls at fastest pace since 2019, survey") the financial crash in 2008,” said Xiaowei Wu, senior research economist at the IFS. “(In terms of the impact on the) average family, this is quite a dire picture.”

For many a little further down the income scale, already struggling to make ends meet, food [banks might become one of their options this coming](https://www.financedigest.com/why-pay-by-bank-app-will-come-into-its-own-in-2022.html "Why Pay by Bank App will come into its own in 2022 ") winter, said Lemon at the Trussell Trust.

“I’m quite pessimistic about it at the moment,” he said.

“It’s going to be a really, really tough winter and beyond. And I [think that we’re unfortunately going to see an increasing need for food banks because the protection for those people](https://www.financedigest.com/55-of-people-who-regularly-play-sport-dont-think-being-verbally-abusive-to-another-player-makes-them-a-bad-sport.html "55% OF PEOPLE WHO REGULARLY PLAY SPORT DON’T THINK BEING VERBALLY ABUSIVE TO ANOTHER PLAYER MAKES THEM A BAD SPORT") just isn’t there.

($1 = 0.7312 pounds)

(Reporting by Hugo Greenhalgh @hugo\_greenhalgh; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the [world](https://www.financedigest.com/cheapest-countries-to-live-in-the-world.html "Cheapest countries to live in the world") who struggle to live freely or fairly. Visit http://news.trust.org)


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