The gap in the inflation rates experienced by the richest and poorest households in the UK is at its highest level for 16 years – another sign that the cost of living crisis is most severe for those least able to cope.
With Boris Johnson and chancellor Rishi Sunak now facing daily pleas from business figures and their own MPs to take emergency action to help relieve soaring costs, it emerged that the inflation rate for the poorest 10th of households is 1.5 percentage points higher than for the richest 10th. This is the largest gap recorded since 2006.
The finding, revealed by the Resolution Foundation thinktank, comes soon after official inflation figures showed inflation soaring to 9% in April, its highest level for 40 years. Food prices and household energy bills have fuelled the crisis, and ministers believe it is likely to intensify in the months ahead.
The Treasury is preparing to take action but is desperate to focus its efforts on the poorest households amid continuing anxieties about costs and the risks of pushing inflation even higher. However, it is facing opposition within No 10 over a windfall tax on energy companies to help fund bill reductions.
Yesterday former Tory leader Iain Duncan Smith called for benefits to be immediately increased in line with inflation to provide a “shield” for the poorest. He said that using rebates and special funds to deal with the issue was “a step in the wrong direction for tackling poverty”.
Last week, former Tory chancellor Norman Lamont joined other senior figures in urging wider action when he called for an increase in universal credit and a widening of the existing warm home discount – an idea that is being explored by Sunak. The scheme currently gives 3m households in England and Wales £150 off their bills.
New analysis from the Resolution Foundation shows that inflation for the poorest 10th of households has hit double digits, standing at 10.2%. It is now significantly higher than the 8.7% rate experienced by the richest 10th of households – itself a high level in historical terms. The disparity has widened as poorer households spend a greater share of their income on energy. The 1.5% gap is the highest on record, placing it above the last period of significant food price inflation, in the early 2010s.
The news comes as analysis from Labour suggested that the average family will be almost £500 worse off this year than was predicted before Sunak’s spring statement, when he was criticised for not taking strong enough action on rising household costs. The worsening figures come because predicted inflation for this year has increased since the statement.
Labour is calling for an emergency budget. “These figures illustrate the disastrous impact price rises are having on families right now,” said Pat McFadden, shadow chief secretary to the Treasury. “While the government is paralysed by inaction, ordinary working families are bearing the brunt of some of the worst inflation in a generation.”
According to the Bank of England’s forecasts, the UK is on course for the second-biggest fall in average household disposable incomes since the mid-1960s. “Everyone is feeling the effects of the cost of living crisis, which is fuelled 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 driving the recent inflation surge, low-income families are at the sharp end. In fact, the cost of living gap between rich and poor households is at its highest level since comparable records began.
“As the government prepares a fresh round of cost of living support, it is clear where it’s needed most. The chancellor should prioritise significant targeted support for low- and middle-income households. Doing so swiftly in the months ahead will be logistically challenging, but it can be done – whether through the benefits system or via a heavily reformed warm home discount scheme.”
Health minister Maria Caulfield said on Saturday that the chancellor was not “ruling anything out” amid calls for a boost to the benefits system. She hinted that further action was planned.
“He is very aware of the struggles that families are facing and will be doing all he can,” she told the BBC. “He’s shown during the Covid crisis how nimble he can be.”