Why low-income families are worst hit in the cost of living crisis

What does the next year hold for working families? Well, it depends very much on your individual circumstances, with low-income families set to suffer most over the next year and child poverty increasing. A Resolution Foundation event last week based on their living standards outlook report said the financial crisis driven by rising energy prices is likely to be a two-year crisis, but will have a longer-term impact on those on the lowest incomes, including on their health. One of the groups likely to suffer the most are families with more than two children, given the two-child cap on benefits.

The report, based on a survey of 10,000 adults, found three quarters had cut back on overall spending, with four in five reducing their energy usage. Those on the lowest incomes were cutting back most. A third of adults were facing food insecurity and debt and arrears are building and will have an impact beyond 2024 when the economic outlook is set to improve. More than 40% of people surveyed said they felt under constant strain and that will also have an impact on health – not just mental health, but a knock-on impact on physical health down the line. This is in addition to concerns about rising levels of chronic disease, backlogs in the NHS and the health impact of saving on heating – this in the light of the general fraying of public services over the last decade.

There was some good news – inflation seems to have peaked, although not when it comes to food prices and wholesale gas prices are falling, but that is likely to be cancelled out by the withdrawal of some of the energy support by the Government in April. It is clear that the impact is worst for the lowest paid families, particularly those with more children, given not just the two-child limit, but also the fact that cost of living payments have not been adjusted for the number of children in a household.

In the discussion about the report, Anela Anwar, chief executive of the Zaccheus 2000 Trust, said it was shocking that we seem to have become immune to the ongoing impact of the crisis. She said local authority hardship funds were not sufficient to help people and that disability benefits assessments are flawed and need reform to help those struggling to get the support they need. Meanwhile, Jennifer Dixon from the Health Foundation said life expectancy had stalled as inequality widened over the last decade or more, with those in their late 20s to early 40s most affected. That means young working families, many of whom also face rising childcare bills. Our recent survey showed that many parents feel trapped – they need more hours or better paid jobs, but they can’t find the kind of affordable childcare that meets their needs.

Interestingly, the Resolution Foundation found that older people – where the Conservatives draw most of their support – were significantly less likely to be cutting back than younger ones and less likely to be in debt, possibly because they had been able to save before the crisis hit and because pensions are rising in line with inflation. Dixon pointed out that that has an impact on productivity and said we need to get serious about human capital. Economic prosperity is not just about financial and GDP growth, she said, calling for long-term cross-government policies that target health. Productivity is indeed a core issue for the economy, particularly in a period of labour shortages. There has been a lot of focus of late, for instance, on the number of older workers who have dropped out of the workforce since 2019, with ill health being one of the drivers and the Government looking at everything from tax breaks to benefits changes to address this and plug some of the gaps in the labour market. But focusing on older workers alone is not enough. We know, for instance, that there has been an increase in the number of women in their 30s and 40s who have dropped out of the workforce to focus on their families. Childcare costs have been blamed, but there are a range of issues affecting working families.

The impact of crises can be long lasting. Part of the UK are still experiencing the long-term health and economic fallout of the industrial changes in the 1980s on communities that were ‘left behind’. We must ensure that we learn the lessons and that the long-term impact of the current crisis is not passed on for generations to come, affecting the country’s overall productivity and health.

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