The gap between the inflation rates of the UK’s richest and poorest households is at its highest level for 16 years – another sign that the cost of living crisis is more severe for those who are least able to cope.
As Boris Johnson and Chancellor Rishi Sunak now face daily pleas from business figures and their own MPs to take urgent action to help curb soaring costs, it has emerged that the inflation rate of the 10th poorest household is 1.5 percentage points higher than that of the 10th richest. . This is the largest gap recorded since 2006.
The finding, revealed by the Resolution Foundation think tank, comes shortly after official inflation figures showed inflation had climbed to 9% in April, its highest level in 40 years. Food prices and household energy bills have fueled the crisis, and ministers believe it is set to intensify in the months ahead.
The Treasury is preparing to act but is desperate to focus its efforts on the poorest households amid lingering concerns about costs and the risks of pushing inflation even higher. However, he faces opposition within No 10 over a one-off tax on energy companies to help fund bill cuts.
Yesterday former Tory leader Iain Duncan Smith called for an immediate increase in benefits in line with inflation to provide a ‘shield’ for the poorest. He said using rebates and special funds to tackle the problem was “a step in the wrong direction to tackle poverty”.
Last week, former Tory Chancellor Norman Lamont joined other figures in calling for broader action when he called for an increase in Universal Credit and an expansion of the existing hot house discount – an idea that is explored by Sunak. The scheme is currently offering 3 million households in England and Wales £150 off their bills.
New analysis from the Resolution Foundation shows that inflation for the 10th poorest household hit double digits, standing at 10.2%. It is now significantly higher than the 8.7% rate recorded by the 10th richest households – itself a high level in historical terms. The gap has widened, with poorer households spending a greater share of their income on energy. The 1.5% gap is the highest on record, putting it above the last period of significant food price inflation in the early 2010s.
The news comes as Labor analysis has suggested the average family will be nearly £500 worse off this year than expected before Sunak’s spring statement, when he was criticized for failing to take action strong enough to combat rising household costs. The worsening of the figures comes from the fact that the inflation forecast for this year has increased since the declaration.
Labor calls for an emergency budget. “These numbers illustrate the dire impact that price rises are having on families right now,” said Pat McFadden, Shadow Chief Secretary to the Treasury. “While the government is paralyzed by inaction, ordinary working families bear the brunt of one of the worst inflations in a generation.”
According to Bank of England forecasts, the UK is on course for the second biggest fall in average household disposable income since the mid-1960s. “Everyone is feeling the effects of the cost crisis of life, which is fueled by the highest inflation in 40 years,” said Jack Leslie, senior economist at the Resolution Foundation. “With rapidly rising food prices and soaring energy bills behind the recent spike in inflation, low-income families are being hit hard. In fact, the gap in the cost of living between rich and poor households is at its highest level since comparable records began.
“As the government prepares a new round of cost-of-living support, it is clear where it is needed most. The Chancellor is expected to prioritize strong targeted support for low- and middle-income households. Doing it quickly in the coming months will be a logistical challenge, but it can be done — whether through the benefits system or through a heavily reformed hot house rebate program.
Health Minister Maria Caulfield said on Saturday the Chancellor was “not ruling anything out” amid calls for the benefits system to be strengthened. She hinted that further measures were planned.
“He is very aware of the difficulties families face and will do whatever he can,” she told the BBC. “He showed during the Covid crisis how nimble he can be.”