Price increases for those with the lowest disposable income rose 24% faster than those with the most.
From June 2021 to June 2022, the inflation the rate for the country’s richest fifth was 7.9%, while for the poorest fifth it was 9.8%.
This means prices are rising faster, by almost a quarter, for those who already have the least money to spend, according to Sky News’ analysis of new figures from the ONS.
Today’s figures are the first official measures of inflation by income group since the fuel price hike took effect in April.
With the price cap for October due to be announced next week, things could get even worse.
Energy prices are expected to nearly double again, to £3,582 a year, and the Institute for Fiscal Studies says the bottom 20% will be hit much harder than the richest when that will happen.
Why is there a difference?
Those with the lowest disposable income spend more on basic necessities, such as energy, as a percentage of their total spending, compared to those with the highest disposable income who can save more of their money for luxury goods.
“The energy is what really drove the differences that started to emerge between rich and poor,” said Peter Levell, associate director at the Institute for Fiscal Studies.
“At the beginning of this year, there weren’t really big differences [between income groups]but that really changed in april [when the energy price cap went up].”
A single low-income adult spends on average £1 out of every £3 they gain on energy, while a middle-income person in the same situation will spend around £1 out of £20, according to the Social Change Research Group The Joseph Rowntree Foundation.
These maps show the most common problem the Citizens Advice Bureau helped people with in each local authority area, in the year to June 2019 and the year to June 2022.
Rent is still a major issue in parts of London and the South East, but across the overwhelming majority of the country, it’s clear that concerns over fuel costs have outweighed all others.
What can the government do to help?
The Citizens Advice Bureau (CAB) claims to have already seen a positive effect of the support payments announced by the government earlier in the year.
Those who qualify received £150 off their council tax bill in April, while all energy consumers will get £200 off their bills in October.
Tom MacInnes, CAB’s chief analyst, said “over the past month we have exceeded our forecasts [on how many people are referred to food banks]. We believe there is sufficient evidence that the cost of living payments have had an effect.”
“The question for us,” she added, “did these payments change the trajectory, so that we will end up a little lower at the end of the year? Or is that just pushed it down a bit for a few months? In that case, we won’t be much lower than we expected.”
Beneficiaries still further behind
The amount of money Universal Credit applicants receive is tied to inflation. As wages struggle to keep up with inflationthis should mean that social recipients are more resistant to price increases than workers.
However, the payments are only changed once a year, in April, and the inflation figure to which they are attached is that of the previous months.
In April this year, payments increased by 3.1%, the same rate of inflation as in September 2021. Inflation was already 9% in April, three times higher than this increase in payments.
“The same thing will happen again this year as the big increases in energy prices will occur in October after the release of the September inflation figure,” Levell explained.
This graph shows how Universal Credit applicants could face a reduction in real terms of more than 10% by Christmas.
What steps are taken next will ultimately be a decision for Rishi Sunak or Liz Truss, when the contest to become the next prime minister closes on September 5.
Mr Sunak has promised more direct aid, while Ms Truss says she is initially focusing on tax cuts and that she “will see what it is in the fall” in terms of energy.
Mr Levell says: “It makes sense for the government to get involved and try to help protect people. If they want to make it cheaper, they will have to target these cash payments to those who need it most.
“But we need a way to strike a balance between protecting people who need help, but also ensuring that people have an incentive to reduce their fuel consumption, because there is a mismatch between the ‘Offer and demand.”
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