The cost of living crisis is hitting everyone’s incomes… except the richest
New research shows the cost of living crisis is hitting everyone’s incomes – just not the richest 5 per cent, who will see an income boost over the next two years
A wealthy few are expected to see a rise in their income, while others struggle in the cost of living crisis. Image: Pexels
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Newsflash: the richest are getting richer, while everyone else suffers a blow to their incomes and the poorest cannot afford to eat to eat because of the cost of living crisis.
Almost everyone will see their income slashed in real terms this year and next – except for the wealthiest 5 per cent who will see a nice boost to their bank balance.
These are people who typically have lots of savings, investment and unearned incomes. Rising prices lead to high interest rates, driving up their income.
And now, according to new research from the Resolution Foundation, the wealthiest are on course to see their incomes rise by 4 per cent between 2021-2022 and 2023-2024.
Higher interest rates might also be associated with falling asset prices, and therefore wealth for this group, but their billions should be enough that they won’t be in too much trouble.
In a striking display of poverty in the UK, the think tank also details the suffering of the poorest in the cost of living crisis who are unable to eat or afford even the bare essentials.
A total of six million adults (11 per cent) reported being hungry in the past month. They didn’t eat because they didn’t have enough money for food.
There are worryingly large increases in people unable to afford essentials compared to the pre-pandemic period. Around 12 million people (23 per cent) can’t replace electrical items like kettles or fridges when needed, up from 8 per cent in 2019-2020.
With so much of their income spent on essentials, 14 million adults (27 per cent) don’t have enough left over to save even £10 a month.
Income inequality will rise every year and could reach a record high of 40.8 per cent by 2027-2028, according to the Resolution Foundation’s predictions. That’s higher than the previous peak just before the 2008 financial crisis.
Middle earners will suffer the largest fall in their living standards over the next two years as mortgage bills soar, with households expected to face a £3,000 annual increase in their mortgage costs.
Over the course of the two-year squeeze, real incomes among the poorest fifth of households will fall by 4 per cent, compared to 9 per cent for richer households. This is largely because benefits will rise by 10.1 per cent in April, cost of living payments and low-income households are less affected by higher mortgage bills.
And the bleak reality is that low-income families have faced poor living conditions for years after more than a decade of cuts to the welfare system. According to the New Economics Foundation, £14bn was taken out of the welfare system between 2010 and 2021.
The drop in income will be more of a shock to middle earners, used to a better standard of living. But it will still be the poorest who are hit the hardest by the cost of living crisis.
In November 2022, the Resolution Foundation predicted the richest 10 per cent of households in effect faced an inflation rate 1.5 per cent lower than the poorest 10 per cent.
This is because inflation is being driven by the skyrocketing costs of essentials like food, and low-income households typically spend a greater proportion of their income on essentials.
Low-income families were prioritised in recent decisions to increase benefits and to hand out cost of living payments – but it only comes after Liz Truss and Kwasi Kwarteng’s disastrous mini-budget which was branded “for the richest 1 per cent while the poorest pay the price”.
Dr Jennifer Dixon, chief executive of the Health Foundation, added: “Action to tackle the cost of living must recognise both immediate and longer-term health risks created by growing financial insecurity and debt. The government must act now and craft an intelligent strategy targeting those at greatest risk to avoid hampering the nation’s prosperity in years to come.”
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