Currently, every household in the United Kingdom faces a cost of living crisis problem.
The cost of living crisis is a continuing circumstance, where the prices for basic essentials like food, electricity, gas, and oil increased significantly. The cost of living crisis is the fall in ‘real’ disposable
incomes. The UK experience this crisis since 2021. Both domestic and global problems are being causes of the crisis. While Covid-19 and the Russian invasion of Ukraine affected every European country’s economy, the United Kingdom’s cost of living is the most difficult one. The event is tough for almost every household, being exceptionally harsh for people from poor regions like the North and for people with a lower income. While some wealthier families do not sense the crisis that much, the people with small salaries are modifying their purchases according to the situation.
The government responded to the crisis by introducing a windfall tax and sending packages.
Both the international and national problems influenced the cost of living crisis in the UK.
Among the international causes is the Russian invasion of Ukraine, Covid-19, and global supply chain problems.
The Russian invasion of Ukraine caused a sudden increase in oil, gas, and energy selling prices. The United Kingdom and the Russian Federation are bilateral trade partners. Therefore, the Russian invasion of Ukraine and the result of the sanctions imposed on Russia by the UK and its supporters, have consequential effects on the UK economy. Just as supply chain problems were fading away the invasion of Ukraine made countries buy more products but the supply was restricted that made these problems worse. Russia’s service exports from the UK are 0,7% and mainly consist of motor vehicles, automobiles, and their parts.(Institute for Government)
The imports from Russia are 1,5% and consist totally of oil and fuel. Russia is a well-known exporter of gas to Europe. (Institute for Government) It produces 17% of the world’s natural gas. Russia imports around 60% of its oil and gas from Europe. (TRADING ECONOMICS) There are some sectors, such as ammonia and fertilizer manufacturing that are fully reliant on gas to function. In 2019 the UK imported approximately 13% of gas, oil, and electricity from Russia. (TRADING ECONOMICS, “UK Natural Gas – 2022 Data – 1997-2021 Historical – 2023 Forecast – Price – Quote”) Germany imported in the same year approximately 30% of its oil, gas, and electricity from Russia. (Institute for Government) This comparison shows that the UK is less dependent on Russia than its European allies. But, nevertheless, the disarrangement in the supply of fuel to Europe will also make a difference in the urdughr prices in the UK.
Because of the pandemic in 2019-2021 governments had to shut down the production of the goods and close the factories. It led to the interruption of the usual economic activity. The process is characterized as a postponing of the production of goods that leads to its long times for production respectively. The case was especially actual in China. China used economic restrictions a lot in order to cope with the resurgence in Covid cases. Even in 2022, China continues its lockdown. While working from home during the epidemic, many customers reduced their expenditures and saved money. (Pettinger) There was a spike in demand after the pandemic, particularly for long-lasting goods like electronics. As stated by the IMF, the gap between global demand and supply reduced in 2021 to 1.0 percentage points.
Among the domestic causes is Brexit (labor shortages). ONS figure indicates that the total amount of EU nationals employed in the UK fell by 5% starting from 2019 to the end of June 2021. There are a lot of cases in the UK where the sectors are in demand of staff. The report shows that both in 2021 and in 2022 years there were more than 1,298,400 workers in demand. (Evans) The most affected are food, construction, hospitality, and haulage. In 2021 the Food and Drink generation claimed there were more than a million people staff shortages in the United Kingdom. It means 12% of the total workforce essential. (Driver Shortage Crisis: UK Business Groups Demand Action) In addition, in 2021 the National Pig association reported that there was a culling of a huge number of pigs because of the lack of butchers and better workers.(BBC News) The problem lasted till 2022. (Institute for Government, “What Is Causing Supply Chain Problems?”)Also, there is a lack of drivers for transporting finished goods and ingredients, as well as staff in the warehouses, which are the main cause of the backlogs. (BBC News) The labor shortages prevent companies from producing and delivering food and services. This situation then has negative effects on the economy because it disrupts the supply chain. What affected the number of workers is Brexit. A lot of people left the UK because they felt unwanted according to the polls. (EU nationals feeling unwelcome in the UK) Besides, because of Brexit, it is difficult for the UK to hire new workers from Europe. Now EU citizens are required to do the same procedures as non-EU citizens in order to obtain visas and work in the UK, such as salary and language competency. Furthermore, the areas such as agriculture that were employed by EU nationals found it difficult to replace with nationals. Also, because of the covid-19 from 2019 to 2021, a lot of workers were isolated. The CBI reported that the staff absence rate was 15%. (Partridge) Covid also made workers leave their jobs as they saw no real changes. In 2021 45% of workers left their jobs voluntarily. (Watson)
The effects of the cost of living crisis are severe and felt by almost every household. Because the bills for electricity and other essential requirements of life increased, a lot of people find it hard to afford them. The situation is especially tough for families that have a lower income. People with small salaries have to survive nowadays, choosing between buying food or electricity or going into debt, or turning on the heating. (“1m UK Adults ‘Go Entire Day Without Food’ in Cost of Living Crisis”)
They become more selective in their buying. The heating had become an opulence. People are freezing and worried. They have to cover themselves in jackets, headscarfs, and warm gloves, sleeping in extra blankets to get warm in their houses. Because of the low temperatures, a lot of people’s health is getting worse, especially tough for sensitive people who have asthma and other disabilities. People are finding ways to cut bills by using tin buckets and small gas cylinders. These methods is unhealthy because it increases negative health risks. (Fox)
In addition, there is a connection between the cost of living crisis and the mental health of people. (Ambrose) Britain claims that they worry about the crisis every day and besides the inflation, they worry about the country’s economy as well. It especially affects younger people and kids. They argue that their emotional well-being is suffering because of the continual misery and stress of living in a freezing house. There is an industry report which states that the price of the usual grocery shop increased almost to £40 which made people buy lesser products, eat less, and stop going to restaurants and cooking at home. (Partington and Kirk) The supermarkets saw decreasing sells of their label goods; and, on the contrary, the increasing number of sales of 10% of the cheapest goods. (“In Numbers: What Is Fuelling Britain’s Cost of Living Crisis?”)The cost of living crisis brought huge difficulties to schools. According to the investigations of 11 000 schools, more than of half them say they are lessening the amount of staff or teaching hours. (Morris) It especially applies to the teachers of extracurricular activities. Schools reducing the number of pedagogues because they can not afford to pay for them. Even in the cases where they can pay them the salary is too small to keep the staff satisfied. The cost of lining crisis affected people’s holidays in the way they stopped going or reduced trips both for professional and entertainment purposes. Britons are now choosing to stay in the cheapest hotels and fly with budget airlines.
The government responded to the cost of living crisis by giving a £15bn payment package for the public. The support is intended to help those who are struggling but many of them had financial problems long before the crisis. (BBC) In July more than seven million British families got £326, and in the fall £324. (“Millions to Get First Cost-of-living Payment From 14 July”)The government reported that it will be tax-free and go mostly to single people rather than big families. There will be also distinct wages for disabled people and pensioners and vulnerable families will get more than £1,000 in support. (Butler, “Cost of Living Crisis Could Be Fatal for Some UK Children, Jack Monroe Tells MPs”) Also, every household will get a £400 discount on their electricity and gas bills. The government also responded to the crisis by introducing a windfall tax on gas and oil companies. (BBC News, “What Is the Windfall Tax on Oil and Gas Companies?”) Because of the Covid limitations, the demand increased, and oil and gas companies now getting more than last years. Therefore, the main idea of this policy is to identify those fortunate companies that are getting profit from the things they are not accountable for, which means a windfall. Another policy done by the UK government was removing fuel duty which helps to save the driver £1,600. (“Spring Statement 2022: Fuel Duty Factsheet”)
These policies, however, have been called inadequate by many politicians, including ex-prime minister Boris Johnson and the Bank of England forecasting the UK will break into a recession in 2023. (Elgot, “Boris Johnson Admits Efforts to Ease Cost of Living Crisis Not Enough”)Policy director Rocio Concha argued that: “The success of these measures will ultimately be judged by whether financial help is getting to the most vulnerable in time to help them through this cost-of-living crisis.”(Pickard et al.) Also, the fuel duty was criticized. After all, it is not ecological because it creates carbon emissions.
The package with billions announced by the government is not efficient because the prices are getting higher than it was introduced. Cornwall insights reported that the energy price will fall to £3,582 for a typical family. Thus, the government had to increase its package to £12 billion. (Thomas)What government’s short-term should be to target those families that are struggling the most and offer them support to keep pace with inflation. It should be done this year in 2022 and not in 2023. Government should also introduce £20 uplift for Universal Credit and provide one-off payment to those homes below EPC band C. In the long term, the UK government should improve the economy and reintroduce the Green Homes Grant Scheme. (Centre for Cities, “Out of Pocket: The Places at the Sharp End of the Cost of Living Crisis”)
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