04What needs to change?
Every corner of the UK is experiencing a cost of living crisis but the burden will be felt unevenly across places. Those who live in cities and large towns in the North and the Midlands, many of whom entered the crisis in an already precarious position, are likely to see their financial situation deteriorate more than average, and more than cities and large towns in the South.
The Government’s recently announced support initiatives are welcome and they will partially shelter the most vulnerable from a substantial pressure on costs. However, they will not be enough to support households in fuel stress whose demand for energy is particularly high, either because they rely on cars, or because they live in poorly-insulated housing.
In the short term, the Government should do more to help people weather the storm and support them with their immediate spending needs. This can be done by:
- Increasing benefits now to bring them in line with inflation. Universal Credit payments rose by 3.1 per cent in April, which is far from the near-10 per cent inflation rate. This is because benefits rates are aligned with the Consumer Price Index from the previous year, which means that under the current system, inflation and the energy price cap rise will not be reflected in benefits until April 2023. This will be too late for many households already in fuel stress. It has been estimated that this mismatch is equivalent to a one-off £11 billion cut to benefits and that bringing Universal Credit in line with inflation could provide more than 4 million households with an average of £739 extra support over the next year.13
- Reintroducing the £20 uplift for Universal Credit for the 5.9 million people that are currently on benefits. It would correspond to an extra £1.4 billion a year for benefits on top of the inflation adjustment. By showing that struggling cities are facing higher inflation levels, this research suggests that lower income individuals are likely to face higher inflation. Therefore, the reintroduction of the universal credit uplift would be a way of sheltering Universal Credit claimants from higher inflation than national average.13
- Providing households living in dwellings below EPC band C with a one-off payment to help them face soaring energy bills. The existing support measures do not target different energy needs. The amount would vary depending on the existing energy grade of the dwelling and would seek to offset the impact of inflation (from £150 for dwellings rated D to £350 for those rated G and below).
There are also medium to long-term policy priorities, beyond immediate emergency support. None of these would solve the current crisis, but if implemented now, they could help mitigate the impact of future inflationary shocks.
- The first is to accelerate the retrofit agenda, to reduce demand for energy, cut energy bills and make households less vulnerable to volatile energy prices.
To do so, the Government should reintroduce the Green Homes Grant Scheme, a £2 billion programme which offered households grants up to £5,000 (£10,000 for low-income households) to install energy efficiency measures that cut both energy bills and domestic carbon emissions.
The Government should also be bringing forward the Future Homes Standards regulation (now delayed to 2025), to ensure new homes are compliant with stricter energy efficiency standards and will not have to be retrofitted in the future.
- The second is to encourage growth of the economy generally and, more specifically, to ‘level up’. In the long term, the way to counter cost of living rises is to increase the amount of prosperity that is available.This report has shown that this is particularly a problem in many northern cities – something which February’s Levelling Up White Paper identified as an issue to tackle. As yet, there has been very little policy implementation that seeks to address this challenge. The Government should start implementing the agenda it has set out.