Up and down the country, millions are feeling the pinch—and just last week, the extent of this growing cost-of-living crisis became clearer.
A change to the energy price cap means that the average energy bill will rise by around £700 per year. The Bank of England now forecasts the CPI measure of inflation to peak as high as 7.25 percent in April this year, the highest it’s been since 1991. But, as Jack Monroe points out, even this high headline figures masks the significant impact that price changes have on those struggling to get by.
Even before the Chancellor’s announcements on energy bills, many workers were already struggling to make ends meet. The government’s solution—a £200 loan to help with energy bills and a one-off council tax discount for some households—is woefully inadequate.
The stark reality is that the current cost of living crisis is not just a blip that will go away should energy prices and inflation fall. It’s been years in the making: after a decade of stagnating wages, our social safety net being torn apart, and a pandemic that has hit low-paid workers hardest.
All these factors have contributed to a situation where poverty, including in-work poverty, is at a record high—leaving many facing the impossible choice between heating and eating.
So let’s be clear. People struggling to get by can’t wait: they need more money in their pockets now. But we also need long-term changes to boost wages and patch up the social safety net.
The Pay Crisis
Going into the pandemic, real weekly pay was still yet to recover from the 2008 recession.
Real pay is pay once inflation (rising prices) is taken into consideration. During the pandemic itself, pay did briefly rise back to above its pre-financial crisis peak, but has since fallen back below. This is—by a distance—the longest pay squeeze in living memory.
And while pay has stagnated, the government has been busy tearing apart our social safety net.
The standard Universal Credit payment is just £74.96 per week. It is hopelessly ungenerous by both international and our own historical standards. And the system has an array of punitive elements; the five-week wait, the benefits cap, the sanctions, the two-child limit, to name just a few.
Pay stagnation and a broken social security system have led to a rise in poverty. A record-high 14.5 million people are in poverty. The majority of these (57 percent, or 8.3 million people) live in a household where at least one person works. Under this government, it’s increasingly the case that work is not a route out of poverty.
Now consider the sobering reality for children in modern Britain: 4.3 million children live in poverty, and three quarters of these children live in a working household. Again, a record high. It is little wonder then that a UN report on poverty in the UK compared the government’s welfare policy to a ‘digital and sanitised version of the nineteenth century workhouse, made infamous by Charles Dickens’.
These statistics are from the 2019/20 financial year, meaning that they don’t cover the impact of the pandemic. But we know the impact of the pandemic on low-paid workers has been brutal.
In the Pandemic
Throughout the pandemic, low-paid workers have been more likely than well-paid workers to face a hit to their household finances, more likely to face job losses, more likely to get nothing when off sick, more likely to be furloughed without having their wages topped up, and much less likely to be able to work from home. Workers in lower-paid occupations have also been more likely than those in better paid jobs to die from the virus.
New TUC analysis shows that the number of workers on Universal Credit has increased by 1.3 million since the eve of the pandemic. This is a rise of 130 percent over the last two years, and it means that means one in 14 working adults now claim Universal Credit.
Despite this, little has been done during the pandemic to fix the social safety net. The standard Universal Credit payment was temporarily increased by £20 per week, but has now been cut again. In real terms, it’s is now lower than at the start of the pandemic: compared to February 2020, the real value of Universal Credit has fallen by £12 a month when measured against CPI inflation, and £21 a month when measured against RPI inflation.
Fixing the Social Safety Net
The reality is that inadequate short-term fixes won’t solve our cost of living crisis. We need real solutions that address energy prices, stagnating pay and the broken benefits system. That means recognising that energy is an essential public good that should come under public ownership, and implementing an accelerated programme to insulate homes.
In the long term, Universal Credit must be replaced with a more generous benefits system. But more immediately, it must be urgently overhauled. Universal Credit, as well as legacy benefits, should be increased to 80 percent of the real living wage—around £260 a week. And the punitive aspects of the system—such as the five-week wait, the two-child limit, the benefits cap, and no recourse to public funds—must be scrapped.
Now is not the time to moderate our wages demands. The Governor of the Bank of England is plain wrong on this.
We need unions in workplaces fighting for pay rises that at least match rises in the cost of living. That means giving unions stronger powers and better access to workplaces so they can help drive up wages. And fair pay deals, negotiated with unions, must be implemented across whole industries. That’s how you get pay rising in every corner of Britain.