What is the cost of living crisis?
The cost of living crisis refers to the current social and economic environment where the cost and price of essential goods and services, such as housing, food, utilities and other essentials is rising at a fast rate. This rate is often higher than inflation and the increase in wages or benefits that people receive, therefore making things more expensive for people and reducing living standards.
Due to the cost of living crisis, individuals and families may struggle to afford basic necessities and goods and may be forced to cut back on spending to afford these essentials.
The impact of a cost of living crisis is often disproportionately felt for those with a low-income as costs and prices can often rise past what is affordable for these households.
What are the main factors contributing to the cost of living crisis?
There can be several factors contributing to the cost of living crisis, including:
- Inflation: One of the primary factors contributing to the cost of living crisis is inflation. When the general price level of goods and services increases over time, it can result in a decrease in purchasing power, as people need to spend more to buy the same goods and services.
- Supply chain disruptions: Disruptions in global supply chains due to factors such as natural disasters, trade disputes, or the COVID-19 pandemic can lead to shortages of goods and services, driving up prices.
- Energy costs: The cost of energy, such as oil and gas, can have a significant impact on the cost of living. When energy costs rise, it can increase the price of goods and services that rely on energy, such as transportation and heating.
- Housing costs: Rising housing costs, including rent and mortgages, can be a significant factor contributing to the cost of living crisis. As demand for housing increases, prices can rise, particularly in urban areas where space is limited.
- Healthcare costs: Healthcare costs, including insurance premiums and medical expenses, have been rising for many years, and can be a significant burden on individuals and families.
- Education costs: The cost of education, including tuition fees and textbooks, has been increasing in many countries, putting a strain on students and families.
- Government policies: Economic policies, such as changes in tax rates or monetary policy decisions, can also have an impact on the cost of living. For example, a decision to increase interest rates can lead to higher borrowing costs, which can increase the cost of goods and services over time.
What are the UK government’s policies to address the cost of living crisis?
The UK government has implemented a range of policies and programs to help address the cost of living crisis. Some examples include:
- Increasing the National Living Wage
- Freezing fuel duty
- Providing cost of living payments to those on means-tested benefits
How can people cope with the cost of living crisis?
- Budgeting: Creating and sticking to a budget can help individuals track their expenses and identify areas where they can cut back.
- Cutting back on non-essential expenses: Reducing spending on non-essential items, such as dining out or entertainment, can free up money for essential expenses.
- Seeking financial assistance: Individuals can seek financial assistance from government benefits and financial support, charities, or community organisations.
- Seeking additional sources of income: Finding ways to earn additional income, such as taking on a part-time job or starting a side hustle, can help individuals meet the rising cost of living.
- Claiming social tariffs and looking for cheaper tariffs: People can help by seeing if they are eligible for any social tariffs which can be claimed for a variety of bills such as your water bill, broadband, and other bills. Furthermore, people may also want to see if they can reduce their costs by switching to a different provider.
- Discounts and promotions: People can take advantage of discounts and promotions often to reduce their shopping bills. This can be in-store promotions, or those found online.
- Use a benefits calculator: A benefits calculator can help people see if they are eligible for any national or local benefits. This may be national benefits such as Universal Credit for those in work or out of work, or local schemes such as Council Tax Support to help people with their council tax bills. Our Better Off Calculator can also help identify any other financial assistance such as free school meals, healthy start, or social tariffs.
Glossary of welfare terms
- Alternative Payment Arrangements (APAs)
- Applicable Amount
- Assessment of Need
- Benefits Uprating
- Better Off Calculator (BOC)
- Child Element
- Council Tax Band
- Council Tax Benefit (CTB)
- Council Tax Reduction Scheme (CTRS/CTR/CTS)
- Department for Work and Pensions (DWP)
- Disability Benefit
- Disability Living Allowance (DLA)
- Disability Premium
- Employment and Support Allowance (ESA)
- Enhanced Disability Premium
- ESA Work-Related Activity Component
- Extended Payments
- Family Premium
- Flat Rate Non-Dependant Deduction
- Guaranteed Award
- Her Majesty's Revenue and Customs (HMRC)
- Housing Association
- Housing Benefit
- Income-Banded Scheme
- Income Support (IS)
- Jobseeker's Allowance (JSA)
- Legacy System/Benefits
- Limited Capability for Work (LCW)
- Limited Capability for Work Related Activity (LCWRA)
- Local Housing Allowance (LHA)
- Managed Migration or Move to Universal Credit
- Maximum Amount (Universal Credit)
- Minimum Income Floor (MIF)
- Ministry of Housing, Communities and Local Government (MHCLG)
- Natural Migration
- Non-Dependant Deduction
- Out-of-Work Benefits
- Personal Independence Payment (PIP)
- Severe Disability Premium (SDP)
- Taper Rate
- Two-Child Limit
- Universal Credit Assessment
- Universal Credit (UC)
- War Disablement Pensions (WDP)
- War Widow's Pensions
- Work Allowance
- Work Capability Assessment
- Work-Related Activity Group Premium
- Work-Related Activity Group (WRAG)