Millions of UK homeowners face huge increases to their mortgage repayments as interest rates continue to increase (1)
According to the Office for National Statistics, the average monthly repayment for a mortgage on a semi-detached house in the UK rose 61% to year ending December 2022.
This increase will be even greater now… the news over the last week has focused on how another 2 million people are coming off lower fixed rate mortgage deals between now and 2024, meaning their interest rates are going to increase from around 2% to 6%.
I’m one of these people, my current 2% rate ends in September this year, and I’ll have to switch onto a higher rate, which with my current provider is 6% or 5% on a two year fixed deal. I might of course switch, but that gives me a bench mark, I don’t imagine I’ll get much better than that.
Thankfully my current mortgage is so low that it’s not a big deal for me to manage the increase in repayments In fact if I just extend the mortgage by a few months I can keep my repayments level, which for me means pushing it back from 5 years of repayments to around 5 years and 3 months.
However, obviously I’d rather pay less than more over the next five years or so and it’s difficult to make a judgement as to whether I’m better of fixing now at say 5% for three years, or slightly higher at 5.5% for the full five years, or just going onto the 6% variable rate.
Obviously fixing for a longer period is the strategy IF interest rates are going to go up, while going on the variable rate is best IF interests rates are going to come down.
The problem is I don’t know what’s going to happen to interest rates, but it’s 100% on me to make a decision and 100% on me to bear the consequences of paying more in mortgage interest if I make the wrong the decision.
What’s causing inflation?
The bank of England keeps putting interest rates up because of high inflation, inflation being the rising cost of living.
The government put this down to a squeeze of food and energy because of the legacy of covid and the war in Ukraine putting a squeeze on supply chains, and all of this hasn’t been helped be Brexit making it more difficult to trade with the EU.
Personally I also think there’s a longer term trend of the rise in middle class consumers in countries such as India and China, which will increase demand for all goods and services
neoliberalism is also a problem – as increasing inequality means more wealth sits in tax havens not being used for innovation and more money gets sucked upwards, increasing inequality meaning a higher proportion of our resources go on meat and yachts for rich, which also pushes up prices.
Finally, the UK government has been printing money for years in response to various crises, which reduces the value of the pound. It’s printed almost £1 trillion since 2009 in Quantitative Easing Measures.
In short, there is no obvious immediate end to this inflation crisis because all of the causes are outside of the Government’s control, and many of its responses to global forces over the last decade have made matters worse.
Individualised solutions to Structural Problems (Again)
As to the solutions to the current mortgage crises, all that the current super-rich PrimeMinister Rishi Sunak has is to suggest people should ‘hold their nerve on interest rates‘.
In short, ‘just suck it up’, you’re on your own, deal with it, folks.
Signposting and Sources
This post is really just a general reminder of how damaging neoliberal economic policies are to ordinary people in the long run.
The cost of living crisis is a social problem in Britain in 2022. It is when the cost of basic goods such as gas, electricity and food increase rapidly and faster than average wages, pushing more people into poverty. This post explores what items have increased in price, and who is affected the most.
The cost of living crisis is a situation in which the cost of basic, essential items such as food and energy bills have increased rapidly in a short period of time, and much faster than average household wages.
This means that millions of people in the UK suddenly find themselves struggling to pay for basic items such as gas and electricity, rent, fuel for the car and food because these are a lot more expensive in Autumn 2022 than they were In Autumn 2021, while most people’s wages have not increased anywhere near as quickly.
The Increasing Cost of Living in the UK in 2022
The Cost of Living in the UK increased by 10.1 in the year to August 2022.
The UK government measures this increase in the cost of living (known as ‘inflation’) using the Consumer Price Index (CPI) , which monitors the prices of over 800 goods and services and uses the average changes in price to provide an average inflation figure over the year.
According to the CPI to this the inflation rate was 10.1% in the UK between August 2021 and August 2022…
That means that if it cost you £1000 a month for rent, transport, food and stuff in August 2021 it would have cost you £1100 to buy the same goods and services in August 2022
If this average rate of inflation continues into 2023, which is likely, then it will cost you £1210 to buy the same products in August next year.
What items have increased in price and how rapidly?
You can actually see from the graph above that the main drivers of the increasing cost of living are:
Household costs including services – which mainly means gas and electricity
Fuel costs – the cost of filling the car or van with petrol or diesel
Food costs.
Electricity and gas prices have seen the most dramatic increase in recent months.
10 year trend in domestic electricity prices UK. Source: Nimblefins
Between 2010 and 2021 Electricity prices increased at around an average of less than 10% a year, and some years prices even went down compared to previous years. However prices increased very rapidly between 2021 and 2022 and are set to increase even more rapidly to 2023.
The average price for electricity was 19.6 pence per Kilowatt hour in 2021, but this is set to increase to 34 pence per Kilowatt hour by early 2023, meaning the cost of elecriticty has DOUBLED in less that three years.
The Office for National Statistics prefers to use a baseline index method to show the relative increase of both electricity and gas prices, setting the base index of 100 and showing the same trend as above: that domestic energy prices have doubled in just a couple of years:
In it’s September 2022 research briefing the government noted that the cost of gas had risen 96% in the year to August 2022 while the cost of electricity had risen by 54%.
Rising Petrol and Diesel Prices…
Petrol has also increased in price over the last two years, increasing 30% from £1.20 a litre to £1.60 a litre at time of writing in October 2022, having spiked to a high of £1.90 a litre in August.
Rising food Prices…
Food and non-alcoholic drinks were 13.1% higher in August 2022 compared to August 2021.
These figures are only for food bought from shops (mainly supermarkets) which people prepare and eat at home, they exclude restaurant and takeaway food and drink.
The price of some food items have risen more than others – the Food Foundation notes that the prices of milk and dairy, meat and vegetables have risen more than other categories of food, for example.
There is considerable variation in the rate at which different food items have increased but there are many very basic items which have increased considerably, including low fat milk which is up 34%, pasta up 24.4% and even 15.7%.
What’s happened to average wages in 2022?
Inflation wouldn’t be as much of a problem if wages increased at the same rate as the increase in cost of living, but this has not been the case recently.
According to government figures Real regular pay was negative 2.8% in March to April 2022. This figure takes into account the increasing cost of living and the effects of taxes on wages.
There are differences too between private sector and public sector wages – private sector wages have increased a lot faster than public sector wages, so the real terms decrease in wages (compared to the increase in the cost of living) is much higher for public sector workers such as nurses, teachers and our police.
Who is Affected by the Cost of living Crisis?
While the cost of living is increasing for everyone in the UK, poorer households are affected more than richer households.
The main reason for this is because poorer households spend a higher proportion of their income on gas and electricity and it is these two services which are increasing the most – thus the poor face a higher relative increase than the rich.
It is also the case that the poor tend to pay more than the rich for the same goods and services – their houses, for example, are less likely to be insulated (because they are more likely to be rented) and so heating bills will be relatively higher to achieve the same level of warmth and food costs more because the poor are less able to get to value supermarkets because they don’t have cars, and they are more likely to have to buy from local shops which tend to me more expensive.
Even before the rapid inflation we have seen 2022 so far, millions of households were struggling with meeting bas costs, already having to choose between heating or eating in colder months…
According a recent Guardian Article an additional one million will be pushed into poverty in the winter of 2022/ 2023 because of rising costs of gas and electricity, even with the government’s recent fuel cap.
And another recent study by York University suggests that more than 75% of households will be pushed into fuel poverty by January 2023, which means they will be spending more than 10% of their disposable income on gas and electricity bills.
What are the Causes of the Increasing Cost of Living…?
Official government sources tend to identify the following causes:
The Covid-19 Pandemic
Supply chain problems (linked to above)
The war on Ukraine…
However more objective observers also point to:
The negative consequences of four decades of neoliberal economic policies (in particular)
Liz Truss’ recent hyper neoliberal policy agenda has just deepened the crisis even more.
The Capitalist model of global ‘development’ (in general)
For a more in-depth look at this very broad question please see this post (forthcoming) The Causes of the Cost of living Crisis.
The Cost of Living Crisis is a Social Problem
The mainstream media loves to present us with stories of how people are coping with the Cost of Living crisis – putting a personal touch on the crisis which supposedly makes it easier for us to relate to and understand.
I outlined some examples of this in my recent post: Surviving the Cost of Living Crisis: Case Studies.
However, while these stories of people’s financial struggles are private troubles, it is also very obvious that the cost of living crisis is also a public issue – it is a crisis rooted in social and changes and structural problems that individuals themselves have no control over.
For example, the government’s chosen response to Lockdown the country during the Pandemic effectively shutdown the economy and de-railed econo;mic growth.
Similarly governmental responses to covid-19 around the world created supply chain issues pushing up the costs o many basic goods and causing shortages which makes it harder for economic activity to pick back up again.
Brexit has also retarded the economy by making it harder for British businesses to continue trading with Europe.
And of course the much mentioned war in Ukraine means Russia has halted its gas supply to Europe, pushing up energy prices.
In fairness the government has recognised that this crisis is social in nature, because it has stepped in with some measures such as the energy price cap and direct payments to households to help deal with the increased costs.
BUT it doesn’t seem to be accepting the fact that there are deeper structural issues at work too – such as our lack of renewables (which would make us more energy independent) and our commitment to neoliberalism which has for years allowed the private sector to drain money from the public sector, reducing teh governments capacity to spend its way out of this crisis through a massive green-infrastructural development plan, for example,
Anyway, I’ll cover the structural elements of the causes of the crisis and some of the more radical potential solutions to in a couple of future posts. For now, just keep in mind that this event, this crisis needs to be addressed with a critical mind, and you should be looking for the deeper structural causes of it and for deeper more longer term solutions than just handing out packets of money to individual households and energy companies!
Signposting – Relevance to A-level Sociology
While the increasing cost of living is only directly relevant to the Wealth, Poverty and Welfare module, which few students study as an option, I personally think students should be directed to study this topic as the main contemporary event which is affecting all of us in the UK today in 2022.
To my mind the fact that the material reality of our lives is getting harder and that this is having real consequences challenges Postmodernism especially and I’d further suggest that Marxism becomes more relevant as huge amounts of people are being driven further into absolute and relative poverty as a result.
The Food Foundation – A charity which live tracks the price of a basket of food items regarded by the public to be a reasonable basket of items – they distinguish between a woman’s basket and a man’s basket – interestingly the man’s basket is £7 a week more expensive than the woman’s basket!
