Poorest households see prices rise 24% faster than richest

Price rises for people with the least disposable income have risen 24% faster than those with the most.

From June 2021 to June 2022 the inflation rate for the richest fifth of the country was 7.9%, while for the poorest fifth it was 9.8%.

That means prices are rising faster, by almost a quarter, for those who already have the least money to spend, Sky News analysis of new ONS figures shows.

Today’s figures are the first official inflation measures by income group since April’s fuel price increase came into effect.

With the price cap for October set to be announced next week, things could be about to get worse still.

It’s expected that energy prices could almost double again, to £3,582 a year, and the Institute for Fiscal Studies says the poorest 20% will be hit much harder than the richest when that happens.

Why is there a difference?

Those with the least disposable income spend more on essentials, like energy, as a share of their total spending, compared with those with more disposable income who are able to spare more of their money on luxuries.

“Energy is what really drove the differences that started emerging between rich and poor,” said Peter Levell, associate director at the Institute for Fiscal Studies.

“At the beginning of this year, there weren’t really big differences [between income groups], but that really changed in April [when the energy price cap went up].”

A single adult with a low income spends £1 of every £3 they earn on energy on average, while a middle income person in the same situation will spend about £1 in every £20, according to social change research group The Joseph Rowntree Foundation.

These maps show the most common issue that Citizens Advice Bureau helped people with in each local authority area, in the year to June 2019 and the year to June 2022.

Rent is still a major issue among parts of London and the southeast, but across the overwhelming majority of the country it’s clear that concerns over fuel costs have overtaken all others.

What can the government do to help?

The Citizens Advice Bureau (CAB) say they have already seen a positive effect from the support payments announced by the government earlier in the year.

Those eligible received £150 off their council tax bill in April, while all energy consumers will receive £200 towards bills in October.

Tom MacInnes, CAB Chief Analyst, said “in the last month we’ve undershot our projection [on how many people are referred to food banks]. We think there’s decent evidence that the cost of living payments have had an effect.”

“The question for us,” she added, “is have those payments changed the trajectory, so that we’ll end up quite a bit lower at the end of the year? Or has it just sort of pushed it down a little bit for a couple of months? In which case we won’t be that much lower than we were expecting.”

Benefits claimants falling even further behind

The amount of money Universal Credit claimants receive is linked to inflation. Given that wages are struggling to keep up with inflation, that should mean benefits claimants are more resistant to price rises than workers.

However, payments are only changed once a year, in April, and the inflation figure they are pegged to is from months previous.

In April this year payments went up by 3.1% – the same as the inflation rate from September 2021. Inflation was already at 9% in April, three times more than that rise in payments.

“The same thing is going to happen again this year because the big energy price increases will occur in October after that September inflation number comes out,” explained Mr Levell.

This chart shows how Universal Credit claimants could be facing a real terms cut of more than 10% by Christmas.

What measures will be taken next will ultimately be a decision for one of either Rishi Sunak or Liz Truss, when the contest to become the next Prime Minister ends on 5 September.

Mr Sunak has pledged more direct help, while Ms Truss says her initial focus is on tax cuts and that she will “see what the situation is like in the autumn” with regard to energy.

Mr Levell says: “It makes sense that the government will get involved and try to help protect people. If they want to make it less expensive, they will have to target those cash payments to those that most need it.

“But we need a way of striking the balance between protecting the people who need help, but also ensuring that people do have an incentive to cut down on their use of fuel because there’s a mismatch between supply and demand.”

The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open source information. Through multimedia storytelling we aim to better explain the world while also showing how our journalism is done.

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