Woman warming her hands by the radiator

Woman warming her hands by the radiator

Not going away: the cost of living pressures facing Welsh households

Published 11/09/2023   |   Reading Time minutes

Cost of living pressures are still very much with us. Average household energy bills are coming down, however the energy price cap remains much higher than when bills started to increase in late 2021. Households are also receiving less support with bills than a year ago. Housing costs are rising, both for mortgage payers and renters.

Inflation has fallen to 6.8%, and is expected to fall to around 5% by the end of 2023. Despite this, it is still well above the Bank of England’s target of 2%. And while the rate at which food prices are increasing has slowed, in July they were still nearly 15% higher than a year before.

On Wednesday (13 September), the Senedd will debate the Equality and Social Justice (ESJ) Committee’s report on debt and the rising cost of living. This article sets out the key issues households across Wales face, and potential approaches to addressing them.

A record fall in living standards

The Office for Budget Responsibility says “living standards are set for the largest fall on record” in 2022-23 and 2023-24, before starting to rise again from 2024-25. The National Institute for Economic and Social Research (NIESR) found:

…falling real wages and rising bills and debt levels have hit households in the bottom half of the income distribution hardest, leading to a shortfall in their real disposable incomes by up to 17 per cent over the period 2019-2024.

The Bevan Foundation highlights that 15% of households are struggling to afford essential items, while a further 33% have enough for the basics but little else. Four groups are at greatest risk of financial hardship: renters; disabled people whose condition limits them a lot; parents of children under 18; and people in receipt of Universal Credit or legacy benefits.

Supporting households with energy bills

The number of households seeking advice from Citizens Advice Cymru about energy debts is at record levels. The Welsh and UK governments have provided a range of support to help households with energy bills and the cost of living. The Trussell Trust says, while this support provided short-term respite for struggling households, it has “not been enough to help them manage the cost of living crisis for an extended period of time”.

The ESJ Committee called for the Welsh Government to take a longer-term approach to tackling poverty, through investing in green energy, skills, and food security.

Citizens Advice Cymru highlights that the Welsh Government’s Wales Fuel Support Scheme won’t be in place this winter. It says that “you can remove the scheme, but you won't remove the need”, with improved energy efficiency key to addressing this.

After a delay, the Welsh Government published its plans for the next iteration of the Warm Homes Programme in June, which it plans to have up and running by the winter. This will support low-income households living in dwellings with an Energy Performance Certificate of E and below, or D for individuals with a recognised health condition. It will mainly be demand-led, although an area-based approach may be developed with local government.

Addressing food poverty

One in five people in Wales have experienced food insecurity over the last 12 months, cutting back on or skipping meals. The Priority Places for Food Index highlights that the Rhondda, Blaenau Gwent and Merthyr Tydfil and Rhymney are at the greatest risk of food insecurity.

In 2022-23, the Trussell Trust distributed a record 185,320 emergency food parcels across Wales, including 69,683 for children. However, it has said “food banks are not the answer”, and that the Welsh Government should develop a long-term plan to reduce the need for them.

The ESJ Committee acknowledged the importance of the short-term support offered by food banks. It wants to see the Welsh Government assist the transition to a more sustainable long-term approach by supporting organisations to provide healthy meals to communities and to improve people’s cookery skills.

Rising housing costs

With interest rates rising sharply over the past year, many people’s monthly mortgage repayments have already increased. The Bank of England forecasts that nearly all mortgage-paying households will be affected over the next three years. The Centre for Economics and Business Research estimates households in Wales will pay an additional £3,000 per year if they refix their mortgage in 2023, or £2,400 if they refix in 2024.

The First Minister says the Welsh Government is developing schemes to support people with mortgage difficulties to stay in their homes, and has allocated additional funding to support this.

While we’ve heard lots about increases to mortgage payments over recent months, private rents are also seeing record increases. The Office for National Statistics reports that rental prices in Wales increased by 6.5% over the year to July 2023. Homelet highlights that rents for new private rented tenancies have risen by 9.1% over this period. The Welsh Government is currently consulting on a green paper on adequate housing, including measures relating to housing affordability and fair rents.

Creating a ‘Welsh benefits system’

One of the main tools the Welsh Government uses to support low-income households is means-tested grants, sometimes referred to as the Welsh benefits system. This support is additional to social security benefits, most of which are delivered by the UK Government. Policy in Practice was commissioned by a number of organisations to undertake a feasibility study into developing a more coherent approach to administering these grants. Their report highlights:

  • simplified eligibility criteria would improve identification of eligibility for Welsh benefits, and help to target take-up; and
  • creating a common digital application process, which encompasses the data requirements for all Welsh benefits, would enhance take-up of benefits.

The ESJ Committee called for the Welsh Government to turn its vision for a ‘Welsh benefits system’ into reality. It suggested developing an approach where households receiving one benefit automatically receive others they are eligible for. The Welsh Government aims to publish a benefits charter by the end of this year, setting out the principles under which the system will operate. It is also developing an implementation plan for a common approach to administering these grants.

Winter pressures

The Bevan Foundation says there is no sign of cost of living pressures abating over the coming months, outlining:

…there is undoubtedly more pain to come. Mortgage and rent costs are set to continue to rise, food producers are talking about high food prices becoming the norm and there are no signs of energy costs returning to 2021/22 levels.

In June, the Senedd unanimously voted to support a motion based on the themes of Climate Cymru’s ‘Warm This Winter’ campaign, which called for the Welsh Government to do more to support vulnerable households this winter. This includes scaling-up energy efficiency programmes and supporting community energy; and raising the need for UK-wide support with the UK Government.

However, the First Minister recently announced that the Welsh Government is experiencing in-year financial pressures. It will be working to mitigate these based on supporting those in greatest need and “protecting frontline public services, as far as possible”. The decisions it makes, and how it implements them, will be hugely important for many households across Wales.

You can watch the Plenary debate on the ESJ Committee’s report via Senedd TV.

Article by Gareth Thomas, Senedd Research, Welsh Parliament