Inside the UK’s Cost of Living Crisis

Inside the UK’s Cost of Living Crisis

The UK’s cost of living crisis is caused by prices rising faster than wages. This is due to global issues like competition for raw materials, Brexit, and supply chain disruptions, as well as the impact of the pandemic, which affected production and led to inflation. Since 2010, inconsistent government policies and the decline of trade unions have kept wages from keeping up with the rising cost of living. The housing market adds to the problem, with high prices making it harder for people to move and creating inequality, especially between generations. Brexit and Covid lockdowns have worsened the situation, making the UK more vulnerable to global economic challenges. This has led to frustration among the public, with many seeking change and solutions to improve living standards.

Robert Dingwall, Emeritus Professor and consulting sociologist at Nottingham Trent University elaborates on the long-term social impacts of this crisis.

• What are the primary drivers of the UK’s current cost of living crisis, and how do they interact with each other?

A cost of living crisis is the result of prices rising faster than incomes. We need to understand both sides of this relationship. Prices have risen because of global factors, like greater competition for key raw materials and disruptions caused by wars, and by increasing barriers to free trade, like Brexit. There is also a legacy of interruptions to production as a result of pandemic lockdowns, which has upset the balance between the amount of money in the economy and the quantity of goods and services available to buy. This results in inflation as people compete to buy things they need. Pandemic lockdowns also squeezed the profit margins of producers and they have been trying to rebuild these.

• How has the UK government’s fiscal and monetary policy over the last decade contributed to the current cost of living challenges?

Since 2010, the UK government has not had consistent fiscal or monetary policies, and, as the present Conservative leader has admitted, no plan for the economic consequences of Brexit. The result has been a lack of growth in the economy, which would have helped incomes keep pace with prices. The weakening of trade unions and the deliberate promotion of an insecure labour market has left ordinary workers unable to maintain their share of national income. This was aggravated by the money printed by government during Covid lockdowns, and the inflation that was inevitable as the lockdowns ended: more money chasing the same amount (or less) of goods. This was predictable but there was no plan to deal with it.

• How does the rising cost of housing, both in terms of renting and homeownership, impact the overall economic mobility and inequality in the UK?

The cost of housing is a problem in the UK, affecting the ability to move in search of better economic opportunities, which worsens inequality. This is aggravated by intergenerational inequalities: people whose parents bought houses fifty years ago, when they more affordable for a bigger proportion of the population, have big advantages from inheritances and loans from the ‘Bank of Mum and Dad’. But it is not as simple as an absolute shortage. What is profitable for private developers to build is often not well-matched to local needs, in terms of size and location. There is also a growing problem of under-occupation where older people in family-size housing find it difficult to trade down and release those houses, because they cannot find suitable properties for their needs.

• What role have supply chain disruptions, Brexit, and global geopolitical factors played in the UK’s inflationary pressures and food insecurity?

The UK has a long-standing problem with economic growth and productivity, going back well before 2010. This has left the country particularly exposed to global factors like supply chain disruptions, Covid lockdowns and geopolitical conflicts. Brexit is self-inflicted damage, which increased both import and export costs, meaning the country had to pay more for goods and services, including food, while being less able to export and earn money to cover these. The results have been quite devastating for SMEs. Covid lockdowns were also a major source of disruption, whose effects are still being felt.

• What evidence is there to suggest that the cost of living crisis is leading to a rise in social unrest or changes in political attitudes among the UK population?

The evidence is not entirely clear. What seems to be happening is a local reflection of the general discontent with parties that have been in government since 2010 and failed to improve real incomes and living standards. There is a greater willingness to abandon traditional loyalties and allow somebody else to try to solve complex and difficult problems. This seems to be the main driver for the landslide victory of the Labour Party in 2024. However, there also seems to be an element of desperation and impatience, partly fuelled by conservative-leaning media, that expects long-standing and global issues to be sorted out within months rather than requiring several years of consistent and committed effort. Opinion polling suggests that the result is a highly volatile electorate which is not really clear what it wants from government, except that it doesn’t like what it is getting.