Impact of the cost of living crisis in Wales

Brigid Francis-Devine; Daniel Harari; Harriet Clark

The cost of living has been increasing across the UK since early 2021. In May 2022, the annual rate of inflation was the highest it has been since 1982.

The Library briefing Rising cost of living in the UK provides a detailed overview of the drivers of inflation in the UK, Government policy to support households, and the impact of rising prices on households, particularly low-income households.

Rising prices

Consumer prices, as measured by the Consumer Prices Index (CPI), were 9.1% higher in May 2022 than a year before.

Increases in the costs of consumer goods, underpinned by strong demand from consumers and supply chain bottlenecks, have been one factor behind rising inflation. Another important driver of inflation is energy prices, with household energy tariffs increasing and petrol costs going up. From May 2021 to May 2022, domestic gas prices increased by 95% and domestic electricity prices by 54%.

Impact on households

91% of adults in Great Britain reported an increase in their cost of living in June-July 2022.

The Institute for Fiscal Studies estimated that households in the lowest income decile faced an inflation rate of 10.9% in April 2022, 3 percentage points higher than inflation faced by the highest income decile. Low-income households stand to benefit the most from the February and May 2022 cost of living support packages.

Government policies

Senedd Research paper Support with cost of living pressures provides details on support provided by the UK and Welsh Governments. The Library briefing The Social Security (Additional Payments) Bill 2022-23 provides more detail on UK Government support.

Government support, estimated at £37 billion, includes:

£400 off energy bills for all households
£650 payments for households receiving means-tested benefits with additional payments of £300 for pensioners and £150 for people receiving disability payments
a £150 council tax rebate for households in council tax band A-D (the Welsh Government received equivalent funding through the Barnett formula, but is also providing this support under the Cost of Living Support Scheme.)
a 5p cut to fuel duty
an increase in the threshold at which NICs begins to be charged on earnings

In April 2022, the UK Government also brought in tax rises, for both income tax and National Insurance contributions (NICs). Once these changes are included, the net level of government support is worth around £14 billion in 2022/23.