UK households £2,900 worse off after five years of soaring prices
Key Points
- Typical UK working-age households are £2,900 a year worse off after five years of inflation
- Prices rose nearly 30% between July 2021 and August 2026, with inflation peaking at 11.1%
- 1.7 million more households could not keep warm in 2022-23
- Energy supplier debt has tripled to £5 billion and Council Tax arrears hit £7.5 billion
- The Resolution Foundation wants Budget support targeted at poorer families' energy bills
Typical working-age households in the UK are £2,900 a year worse off after five years of high inflation, the Resolution Foundation said.
The think tank’s report, Counting the cost, funded by the Nuffield Foundation, found that three back-to-back crises delivered 13 years’ worth of normal inflation in just five years.
The post-pandemic supply shock, Russia’s invasion of Ukraine and conflict in the Middle East pushed inflation to a peak of 11.1%. Prices in August 2026 stood nearly 30% higher than in July 2021.
The Resolution Foundation compared real incomes in 2026-27 against a scenario where inflation had stayed at the Bank of England’s 2% target. Under that measure, a typical working-age household has lost £2,900, or 7.9% of its income.
Real median income after housing costs for non-pensioners looks set to fall by 1.3%, or £450, between 2020-21 and 2026-27. Incomes at the 25th percentile will drop by 1.2% (£270), while better-off households at the 75th percentile will see growth of just 0.3% (£130).
Energy sat at the centre of the price shock, with household energy bills more than doubling by autumn 2022. Higher energy costs then fed into other prices, pushing food inflation to nearly 20% in March 2023 and services inflation to 7.4% in July 2023.
That services figure marked its highest level in more than three decades. Energy bills and food together account for a quarter of the overall rise in prices over the period.
Poorer households hit hardest
Inflation ran steepest on essentials, which make up a larger share of spending for poorer households. The rise in non-housing costs since before the pandemic has been around one-sixth bigger for the poorest tenth of households than for the richest tenth.
Families responded to higher prices by turning down the heating. An extra 1.7 million households said they could not keep warm enough in 2022-23 compared with the year before, and 950,000 of them sat in the poorest 40% of the population.
The poorest tenth of neighbourhoods cut energy use by 15% more than the richest in 2023. Colder areas also made larger cuts, meaning the biggest reductions happened where people most vulnerable to a gas price shock tend to live.
Arrears on priority bills such as energy, water, Council Tax and rent are also climbing. By March this year, 18% of households in the poorest half of the country had fallen behind on a priority bill, up from 10% in September 2020.
The total owed to energy suppliers has more than tripled in real terms since 2018, reaching £5 billion. Council Tax arrears in England have more than doubled since 2012-13, rising 117% to £7.5 billion.
Calls for targeted Budget support
The Resolution Foundation warned that previous cost of living support proved expensive and poorly targeted. The Energy Price Guarantee alone cost the Government over £20 billion, and it went to households regardless of need.
The think tank said any new support in the upcoming Budget should go to poorer families who have fared worst, with energy bills the clear priority.
“Having experienced 13 years’ worth of inflation over the past five, families across the country are struggling with the cost of living. Unfortunately, help is needed just when the public finances leave less room than ever to provide it,” said James Smith, chief economist at the Resolution Foundation.
“While the hit to incomes from rising prices has been felt right across the board, the hardship has not been equally shared. It is poorer families who have cut back hardest on heating and are falling behind fastest on essential bills, and conflict in the Middle East is set to keep energy prices high,” Smith added.
“The Government can’t borrow its way out of this, and repeating the expensive blanket support of 2022 isn’t an option. Any new help must be squarely targeted at the poorer families facing the greatest hardship – starting with their energy bills,” he said.
“Five years of unusually high inflation have had a substantial impact on household finances, with lower-income families facing the greatest pressure,” said Alex Beer, assistant director of strategy at the Nuffield Foundation.
The Resolution Foundation said it will set out how to fund targeted energy bill support in its upcoming pre-Budget report.
