Tackling the Cost of Living Crisis
Max Mosley
Macro Economist
In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy. Max also outlines why traditional policy tools may not be enough to bring us out of the crisis and discusses some unconventional policies which may help.
In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy. Max also outlines why traditional policy tools may not be enough to bring us out of the crisis and discusses some unconventional policies which may help.
The cost of living crisis has been brought on by a multitude of problems, emergence from the pandemic, the Russian invasion of Ukraine and Brexit.
The ongoing crisis is likely to present a similar economic threat that the COVID-19 crisis displayed in terms of scale, but policy makers haven’t reacted with the same strength and determination they did during the pandemic. The government has been delayed, timid and imprecise in their assistance.
Given the rise in prices of everyday items and the skyrocketing inflation, it is predicted that 20% of UK households will see food and energy bills higher than their incomes.
Key learning objectives:
Outline the effects of the cost of living crisis
Understand how the cost of living crisis will affect savings
Outline what could be done to tackle the crisis
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What effect will the cost of living crisis have?
Low income households spend 70-80% of their incomes on essentials, therefore these houses will be hit hard when the prices of food and energy start to rise. A second factor for these low income households is the fact that it is essentials whose prices are rising, they cannot choose not to buy these essentials.
Inflation is projected to top 14% and very few people will get a pay rise to match that. This will mean that at the same time the prices of essentials are rising, people are also taking home less real pay.
It is predicted that 20% of UK households will have energy and food bills higher than their income.
What will happen to savings levels?
Savings is the main way that the cost of living crisis is being fought whilst incomes aren’t keeping up with inflation.
There were reports that there was a huge increase in savings following the pandemic where people couldn’t spend as much as normal. However, this is only partly true. Higher income households saw a massive increase in savings, however those at the lower income level saw savings decimated. Therefore with the low stock of savings, rising prices of essentials and incomes failing to keep up with inflation, the number of households with no savings is set to double between 2023 and 2024, resulting in nearly a quarter of all households with no savings at all.
What can policy makers do about it?
Policy makers have to accept that traditional policies might not save us from the crisis. Policies that were once on the fringe of academic and political thought could become mainstream. Ideas that could be considered are raising the taxes of the rich or even nationalising the energy producers.
Given a large factor of the cost of living crisis is the rising energy bills, another policy that could be implemented is the idea of a variable energy price cap. The idea being that the more you earn, the higher your price cap would be. This makes sense given energy usage is nearly perfectly correlated to income.
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This video is now available for free. It is also part of a premium, accredited video course. Sign up for a 7-day free trial to watch more.
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