Cost of Living Crisis? Not for the Rich
Shell’s CEO literally wants to be taxed more.
by Ell Folan
12 October 2022
If you were looking for a microcosm of the UK’s cost of living crisis, the government’s recent mini-budget is just that. As the Tories pledged austerity for public services and real-term cuts to benefits, they also slashed taxes for the super-rich and signed off bankers’ massive bonuses.
The government’s mini-budget cut taxes for the richest Britons, but the overall impact of all the budget policies is even more stark. Those who earn over £200k a year will take home £4.3k in tax savings, whilst the poorest will get just £218. pic.twitter.com/vTXD6OKlbx
— Novara Media (@novaramedia) September 23, 2022
The enormous backlash to the budget (prompting screeching U-turns) was no doubt driven by the fact that it laid bare most voters’ experiences: even as they struggle and cut back, the rich continue to rake in huge sums of cash. In fact, the budget shone a 50-foot floodlight on the unequal way Brits have experienced the cost of living crisis.
There are three major aspects to the cost of living crisis: the rising cost of domestic energy, the rapidly increasing cost of consumer goods and housing costs such as rent. On all measures, poor and middle-class Brits are feeling the pinch – but comfortable, well-off Brits have barely noticed any changes.
The most prominent aspect of the crisis is the skyrocketing cost of domestic energy, which since the raising of the Ofgem price cap on 1 October is expected to average £2,500 a year for a typical household (up from £1,277 this time last year). In absolute terms, rising bills will cost everyone money: the richest 10% are expected to pay £1,900 more in bills in 2022-23. But because energy costs don’t correlate with your income as other costs, the rich can absorb the price hike more easily.
What the cost of energy does depend on, however, is how energy efficient your home is: the least energy-efficient households (Bands D-G) pay the most and the most efficient (Bands A-C) pay the least. Statistics from 2020 show that 48% of the poorest households still have an energy efficiency rating of D or lower, meaning they are more severely affected by rising fuel costs. In short, as poorer households get hit by the twin pressures of rising rents and rising fuel costs, the latter’s impact is enhanced by their poor quality of housing.
The chart below shows spending on household energy by income decile – both the actual shares in 2020-21 and the projected figures for 2022-23. As you can see, for the poorest households energy costs will rise to an estimated 18% of their spending – whilst the richest will see it rise to only 7%.
These statistics don’t take into account other rising prices or include support schemes like council tax discounts, but they do take into account the government’s recent cap on prices. Without that cap, energy costs would have soon risen to 25% of spending for the poorest households.
The second most prominent aspect of the crisis is the rising cost of consumer goods. Year-on-year, consumer price index inflation has hit record highs over the past few months, reaching 10% in July and August – the highest figures since February 1982.
As with energy costs, inflation hits the poorest more than the richest. Take food costs, for instance. The retail prices index suggests food is now 12.4% more expensive than in August 2021. Given that last year food made up around 18.5% of household spending for the poorest households, we can estimate that inflation will push this up to 21%. Meanwhile, the richest will spend only 13% of their income on food.
Finally, housing. The cost of renting and mortgage repayments have both risen, but mortgage repayments are a much smaller share of income than rent. Given that 81% of the richest households are homeowners, compared to just 39% of the poorest, poorer Brits are on average going to see a larger increase in their housing costs.
It’s clear we aren’t experiencing this crisis equally. In fact, some of us are doing just fine – so fine in fact that the CEO of Shell (who is paid £6m a year) wants to tax himself. As far as the rich are concerned, there’s no cost of living crisis at all.
Ell Folan is the founder of Stats for Lefties and a columnist for Novara Media.