UK cost of living crisis: Nearly half of families lack discretionary income

2022-10-29 21:42:56
UK cost of living crisis: Nearly half of families lack discretionary income

Elena Gheorghe had never eaten at a food bank until this year. But like millions of people in the UK, she has watched her daily expenses eat up more and more of her income, and she ran out of corners to cut.

So, for the third time in recent weeks the 35-year-old mother and nursery school administrator is getting a hot meal at a London charity called Dads House. “It’s nice because people around you are the same like you,” she said while sharing a table with a former chef and entrepreneur. “Normal people.”

As they’ve watched double-digit inflation degrade their paychecks, millions of people in the UK have for the first time found themselves in a similar position to Gheorghe. Over the last nine months, the share of UK households with little or no discretionary income has doubled from 20% to 40%, according to Asda Income Tracker data.

Many have gone into debt paying for things other than food and housing. Others are cutting back on essentials. One study from the Joseph Rowntree Foundation found that 7 million families have gone without things like heating, toiletries or showers this year.

The 20% of earners who sit in the second lowest income bracket have been hit hardest. For more than a decade that group has enjoyed having at least some extra spending money, according to the Centre for Economics and Business Research, which releases the Asda tracker.

That group’s gross income was £407 ($473) a week in September. But after paying for taxes and essentials, which includes housing, heating and food, they had £2.66 a week of discretionary funds left, down from a high of £55 last year. That just about covers one cup of coffee.

And as for the poorest families, whose gross income was just £189 per week in September, they don’t even have enough to cover essentials: They’re behind by about £63 pounds each week — the biggest deficit that group has seen in 15 years.

“It’s hard to feel anything but despair,” said Abigail Davis, a social policy researcher at Loughborough University who has studied poverty and inequality for 22 years.

This is but a slice of the cost-of-living crisis that the UK’s new Prime Minister, Rishi Sunak, will have to contend with as he takes office.

Britons across income levels face a foreboding combination of energy, mortgage, and pension crises. More than half of UK adults were finding keeping up with their bills a heavy burden this spring, according to the Financial Conduct Authority.

Mortgage payments are already rising and the number of people either behind or struggling to pay rent has spiked by 45% since April, according to housing charity Shelter.

But the economic pain hasn’t hit all equally. Poorer people have disproportionately seen their spending power evaporate. That’s partly because those groups tend to lay out a bigger share of their income for essentials, such as food, whose prices have sky-rocketed. Wage growth has also been slower in lower-paid occupations.

The current crisis follows 15 years of wage stagnation for the poorest people in the UK heading into the pandemic. Earnings growth has lagged other European nations: The typical UK income is now lower than in France, Germany and Ireland, according to the Resolution Foundation, a London-based think tank. Meanwhile, the nation has some of the lowest levels of unemployment benefits of almost any advanced economy.

“Collectively as a country we are poorer,” said Arun Advani, an economics researcher at Warwick University.

Middle-earners are also experiencing the biggest financial squeeze since at least 2014. That group saw their discretionary income drop by more than a quarter between January and September of this year, wiping out eight years of gains.

The current political turmoil has only created more uncertainty over if and how the government will address skyrocketing prices. The government before the leadership shakeup had been weighing whether to increase welfare benefits in line with inflation, which would give around 30 million people some much needed relief. Without any assistance, Davis, the researcher, worries the crisis will have long-lasting effects. “The longer people stay in poverty the longer they’re likely to remain in it.”

Alex Sanchez, a 45-year-old caterer earning the London Living Wage at £11.95, can still manage the £650 each month for the room he rents in a house with four other people. But, he’s running out of other expenses to cut. “There’s nothing else I can do,” Sanchez said. “You could just not go out at all, just work, come back to your room and sit and not live a life.”

In some parts of the UK outside of London, inflation has hit even harder. The average Londoner has more than double the discretionary income of someone living in the North East of England, according to the Asda Income Tracker.

Nick de Stacpoole, a 59-year-old single dad of three, is going without heat for part of the evenings, turning it on for just an hour and then just as his family goes to bed. He’s only managed to keep everyone fed by relying on the food bank Dads House. “I don’t want to live on cans,” he said. “I like my children to be healthy.”

But charities such as Dads House are already starting to buckle under the weight of demand. “What we’re seeing is something we’ve never seen before,” said Billy McGranaghan, who founded the organization in 2008. “The people who used to donate don’t have that disposable income to donate anymore.”

Half of independent food banks in the UK say they either won’t be able to help everyone who reaches out to them, or they’ll have to cut the amount of food they’re giving out this winter, according to a survey by the Independent Food Aid Network.

“Meeting the needs of the growing number of people asking for our support has become increasingly stressful for our team of volunteers and is not sustainable,” said Kathy Bland, volunteer coordinator at Leominster Food Bank, in response to IFAN’s survey. “At least in the height of the pandemic we knew there would eventually be an end to it.”

Bloomberg

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