2021–present United Kingdom cost-of-living crisis facts for kids

Since late 2021, the prices for many important things in the United Kingdom started to go up much faster than what people were earning. This meant that families had less money to spend on things they needed. This problem is happening because of a rise in prices around the world, called inflation. It's also due to big events like the COVID-19 pandemic, Russia's invasion of Ukraine, and Brexit. While everyone in the UK feels the pinch, people with lower incomes are hit the hardest. The UK government has tried to help in different ways, like giving money to families who need it and helping with energy bills.

What is the Cost of Living Crisis?

A "cost of living crisis" means that the price of everyday essentials, like energy and food, is going up much faster than what people earn. It's when the money you have doesn't buy as much as it used to. This means that after paying for taxes and getting any benefits, people have less real spending power.

Why is This Happening?

Both worldwide and local reasons have caused the UK's cost of living crisis. About 80% of the reasons are global.

Global Reasons for Rising Costs

• COVID-19 Pandemic: The pandemic caused factories to close and slowed down shipping. This made it harder to get goods, leading to higher prices.
• Chip Shortage: There weren't enough computer chips for things like cars and electronics, which made them more expensive.
• Energy Crisis: The cost of gas and electricity went up a lot around the world.
• Supply Chain Problems: Getting products from where they are made to where they are sold became difficult and costly.
• Russia's Invasion of Ukraine: This war affected global energy and food supplies, pushing prices even higher.

The UK has been one of the countries most affected by these global issues.

UK-Specific Reasons for Rising Costs

• Brexit: After leaving the European Union, some foreign workers left the UK. This led to fewer people available for certain jobs. Also, importing food from Europe became more complicated and expensive, especially for poorer families.
• Increased Taxes: The government increased National Insurance (a tax on earnings) and Council Tax (a local tax) for households.
• Energy Price Cap: The maximum amount energy companies could charge for household energy went up a lot in April 2022.
• Gas Storage: The UK didn't have enough long-term gas storage. This made its energy prices more sensitive to sudden changes in the market.
• Wages Not Keeping Up: For many years, salaries in the UK haven't increased much. This means that even if you earn the same, your money buys less when prices go up. In April 2022, the real value of wages fell by 4.5%, the biggest drop since 2001.

Government Decisions and Their Impact

In September 2022, the government announced big tax cuts. The idea was to encourage businesses and economic growth. However, these plans worried financial markets. The value of the British pound dropped, and the cost for the government to borrow money went up. The Bank of England then raised interest rates. This made mortgage payments more expensive for many homeowners and also affected people's savings. By late October 2022, the government changed its plans, but interest rates stayed high, still affecting family budgets.

How the Crisis Affected People

The cost of living crisis has made many people worried and has changed their daily lives.

Impact on Daily Life

• Worry and Stress: A survey in May 2022 showed that 77% of adults in the UK were worried about rising costs. Half of them worried almost every day.
• Cutting Back: Many people started using less energy to save money.
• Food Insecurity: Some people, especially those with lower incomes, struggled to afford food. A survey in February 2022 found that one million adults in the UK had gone a whole day without eating in the past month.
• Rising Prices Everywhere: The cost of transport, food, furniture, household items, electricity, and clothes all went up.
• Low Confidence: People felt less confident about the economy and their own financial future.

Impact on Public Services

• NHS Strikes: In November 2022, nurses and other medical staff in the NHS voted to strike. They said their wages weren't keeping up with inflation, they were overworked, and the NHS was underfunded.
• Business Investment: Businesses invested less money, and the overall economy (Gross Domestic Product) also went down.
• Heating Homes: In December 2022, research showed that over 3 million low-income households in the UK couldn't afford to heat their homes. Many also struggled to pay for food and warm clothes.

Other Effects

• Shoplifting: There was a 22% increase in shoplifting in the year to September 2022. Some supermarkets started using new systems where customers had to scan their receipts to leave the store.
• Local Government Issues: In September 2023, Birmingham City Council, a very large local government, declared itself effectively bankrupt. This shows how financial pressures can affect even big public bodies.

What Has Been Done to Help?

Both the government and other groups have tried to help people deal with the rising costs.

Government Help

• Minimum Wage Increase: The government increased the minimum wage by 6.6% in April 2022.
• Windfall Tax: In May 2022, the government introduced a special tax on the extra profits of energy companies. This money helped fund support for the public.
• Support Packages:

* Every household received a £400 discount on energy bills. * Many households received a £150 Council Tax refund. * About 8 million low-income households received an extra £650 payment. * Pensioners and people with disabilities also received extra payments.

• Energy Price Guarantee: In late 2022, the government put a limit on how much a typical household would pay for energy each year. This was to stop bills from rising too high.
• Rent Freeze in Scotland: The Scottish Government introduced a law to freeze rents and stop evictions for a period, to help renters.

Help from Other Groups

• Don't Pay UK: This campaign encouraged people to refuse to pay their energy bills to pressure the government for more help.
• Food Banks: Many food banks have seen a huge increase in people needing help. However, they also reported getting fewer donations because the crisis meant people who used to donate could no longer afford to.
• Enough is Enough Campaign: This campaign was started by trade union leaders. It called for things like lower energy rates, pay rises for public sector workers, a higher national minimum wage, and more money for Universal Credit payments. Hundreds of thousands of people joined this movement.

See also

Images for kids

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  Protesters in London, February 2022