A third of households were spending more than their income even before Covid struck – amid fears the looming cost-of-living squeeze could be ‘fatal’ for some.
Analysis has found 35 per cent were living beyond their means up to March 2020, and barely half had a financial buffer that would cover their excess outgoing for a year.
Some 57 per cent of working age people living alone spent more than their income in the previous two-year period.
The grim picture, collated by the Office for National Statistics, emerged with alarm that the UK is heading for a brutal crunch as prices soar and taxes rise.
Economists have warned that families are set to be £2,500 worse off this year as the world reels from the standoff over Ukraine. Ministers have raised concerns it will be like the oil shock in the 1970s, which drove inflation and interest rates to eye-watering levels.
Food writer and campaigner Jack Monroe told MPs today that the impact on the ‘millions of children living in poverty in Britain today’ is ‘going to be, in some cases, fatal’.
Highlighting the spending habits from 2018-2020, the ONS report said ‘some households may be able to maintain higher levels of spending by drawing upon a financial buffer accumulated over their lifetime’.
But it cautioned that ‘others may need to make cutbacks, or borrow, to make up the shortfall’.
Working age people who were living alone and had a shortfall had funds to cover it for just three to four months on average.
Single parent households were less likely to be overspending – at 43 per cent – but those that were could only sustain the level for an average of a month.
Households in the North East were among the most likely to be overspending, and had an average buffer of seven months.
The proportion living beyond their means in the South East was 43 per cent, but had more in the bank – enough to maintain the spending for more than two years.
Analysis has found 35 per cent were living beyond their means up to March 2020, and barely half had a financial buffer that would cover their excess outgoing for a year
In the 1970s CPI inflation hit 23 per cent and Bank of England interest rates 17 per cent
The squeeze was underlined by a chart tracking changes in disposable income
The Resolution Foundation said inflation could hit around 8 per cent this spring – which it said would make ‘falling real household incomes the defining economic feature of 2022’
Campaigner warns cost of living squeeze could be ‘fatal’ for some
Food writer and campaigner Jack Monroe has told MPs that the impact of the cost of living crisis on the ‘millions of children living in poverty in Britain today’ is ‘going to be, in some cases, fatal’, adding: ‘And that’s not a term that I use lightly.’
The food poverty campaigner told the Work and Pension Committee that the home situation of children living in poverty was ‘already untenable’ and had been increasingly so over the last decade.
Ms Monroe, who has argued that the increasing price of everyday essentials and decreased availability of value product lines had left poorer individuals seeing a higher rise in the cost of living than had been reported in existing inflation measures, said: ‘That then makes it difficult to identify that a £20 a week food shop a few years ago gets probably about two thirds of what you’d be able to get for that £20 now.
‘And that’s not people deciding not to go to the theatre or not have legs of lamb or bottles of Champagne, that’s people deciding ‘we won’t eat on Tuesday or Thursday this week’ or ‘we’ll turn the heating off’ or ‘we’ll skip meals’.’
Ms Monroe, who welcomed Asda making good on its pledge to roll out its lowest-priced value range to more stores, added: ‘The onus on ensuring that people are able to feed themselves adequately and decently and nutritiously shouldn’t fall on the price point of pasta in a supermarket.
‘It should be something that people don’t have to do – those macro calculations walking round the supermarket. It should be something that’s available to everyone regardless of their circumstances.’
The Centre for Economics and Business Research has predicted that living standards will fall by a record 4.8 per cent this year.
That would be equivalent to £71billion off disposable incomes, or £2,553 per household. And spending power could fall by another £1,043 per family next year.
The grim estimates came as Michael Gove highlighted the ‘direct historical comparison’ between the current Ukraine crisis and the fallout from the Yom Kippur war in 1973.
That saw oil prices nearly quadruple when Arab nations imposed an embargo in protest at the West’s support for Israel.
In the ensuing chaos UK CPI inflation reached just under 23 per cent in 1975, while by 1979 interest rates had spiralled to 17 per cent.
Boris Johnson today declared a coordinate bid across the West to wean itself off Russian oil and gas supplies.
In a bid to ease the impact from the confrontation with Putin, he has also signalled a new drive for North Sea development.
But gas prices have surged to record levels, prompting fears that household energy bills will double to £4,000 this autumn.
The Bank of England has been expecting inflation to peak at 7.25 per cent in April – but the CEBR now anticipates it will reach 8.7 per cent – the highest figure since May 1982.
The think-tank also fears it will remain above 7 per cent into the start of 2023.
Doug McWilliams, deputy chairman of the CEBR, said: ‘Life is going to be tough for us as a result of the Russian invasion.
‘The economy will effectively be on a partial wartime footing as we reduce our dependence on Russian oil and we work with Europe to reduce dependence on Russian gas.’
A think-tank has cautioned that non-pensioner households already face a £1,000 hit this year from inflation and tax rises – heaping pressure on Rishi Sunak to take action in his looming Spring statement.
In an interview on LBC’s Andrew Marr last night, Mr Gove said was asked if the British public : ‘I think we can get through this, but I think there is a direct historical comparison with what happened in the 1970s.
‘After the 1973 Yom Kippur war, oil prices spiked and that had an effect.
‘There were lots of other things going on in the global economy at that time that were difficult.’
He said there are ‘real cost of living challenges’ and there was a need to ‘level with the British people’.
‘Yes, real challenges ahead. But also, we can get through this, and I think that what we mustn’t do is for any reason to imagine that these challenges will overwhelm a country like ours,’ Mr Gove said.
Mr Johnson revealed last night that an ‘energy supply strategy’ will give the green light for more drilling in the North Sea to help stabilise global prices and improve UK ‘self-reliance’.
Ministers are also expected to endorse plans for a new generation of ‘mini-nukes’ to quickly increase nuclear power generation.
Energy prices soared yesterday as Russia’s war on Ukraine appeared stalled and Western leaders pushed for tougher sanctions on Moscow.
Six new oil and gas fields were already set to be approved in the coming months and now another six.
The Government was already poised to approve six new oil and gas fields in the comings months and is now expected to fast-track at least six more.
The decision to drill for more oil and gas will embolden Tory MPs pushing for the Government to ditch its costly ‘net zero’ plan – and comes just days after Nigel Farage called for a referendum on the issue.
Mr Johnson said the UK’s short-term plan may now involve ‘more hydrocarbons’.
He said this ‘doesn’t mean we are in any way abandoning our commitment to reducing carbon dioxide’, but added: ‘We have got to reflect the reality that there is a crunch on at the moment. We need to increase our self-reliance.
‘One of the things we are looking at is the possibility of using more of our own hydrocarbons.’ Ministers are also discussing possible financial help for businesses hit by soaring energy bills.
Energy traders took fright yesterday over US-led efforts to promote a Western boycott of Russian oil and gas to further squeeze the ability of Russia’s economy to fund Putin’s war machine.
Energy prices jumped to new highs, as Russia’s war on Ukraine intensified, and Western leaders pushed for tougher sanctions.
Gas prices surged to record levels, prompting predictions that domestic energy bills could double to £4,000 later this year.
Oil prices also continued to rise, sparking warnings that petrol could push towards £2 a litre – taking the cost of an average tank-full to more than £100. Unleaded hit a record £1.55 a litre yesterday, with industry sources saying it was likely to rise to £1.75 unless the pressure on global prices relented.
Former Foreign Office minister Sir Alan Duncan warned that the West had to be careful not to ‘sanction ourselves’ by forcing energy prices so high that gas suppliers collapse.
The PM acknowledged that families would feel ‘impacts’ on their cost of living as a result of the sanctions imposed on Russia by the West, but added: ‘It’s the right thing to do.’
He went on: ‘It is completely right to move away from dependence on Russian hydrocarbons but we have to do it step by step… and do everything we can to have substitute supplies.’ EU leaders yesterday warned that a full boycott of Russian oil and gas would take time because of Europe’s heavy dependency on supplies from Moscow.
US Secretary of State Anthony Blinken said on Sunday that ‘active discussions’ were underway on a Western boycott of Russian oil and gas.
But Mr Scholz rejected the idea, saying: ‘At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens.’
Dutch PM Mark Rutte said ending the EU’s dependence on Russian gas was now essential, but warned that moving too fast could backfire with ‘enormous consequences’ for European households.
Former energy secretary Andrea Leadsom last night said ministers should think again about whether to allow local communities to licence fracking operations in their area.
The Treasury yesterday played down the prospect of the Chancellor unveiling new support for cash-strapped families at a planned mini-Budget later this month.
The Resolution Foundation think-tank has highlighted the scale of the squeeze on families in the coming months
The think-tank warned that real earnings are turning negative as inflation soars
The wealthiest households are set for the biggest hit in cash terms, according to the think-tank
Michael Gove has highlighted a ‘direct historical comparison’ between the current Ukraine crisis and the standoff that erupted after the Yom Kippur war in 1973
A source said the Treasury was ‘already providing support worth around £20billion’ to help with the cost of living.
But Mr Sunak is set to come under intense pressure in the coming days to provide more help, particularly for business which is not covered by the price cap on domestic fuel.
The Resolution Foundation said inflation could hit around 8 per cent this spring – which it said would make ‘falling real household incomes the defining economic feature of 2022’.
And even before the conflict in Ukraine, the outlook for living standards this coming financial year was ‘bleak’, with soaring energy bills in April disproportionately affecting families on low and middle incomes.
‘The UK’s post-Covid economic recovery is well under way, but a deep living standards downturn is just getting going,’ the report argued.
The Resolution Foundation’s principal economist Adam Corlett said: ‘Britain has stepped out of a global pandemic, and straight into a cost of living crisis.’
The foundation urged Chancellor Rishi Sunak to address the issue in his upcoming spring statement and increase benefits by 8.1 per cent this year.