Table of contents
- 1. What is wellbeing and how is it measured?
- 2. How has the cost of living changed?
- 3. How is the government addressing the cost of living?
- 4. Read more
On 20 October 2022, the House of Lords will debate the following motion tabled by Baroness Drake (Labour):
That this House takes note of the impact of the cost of living on the public wellbeing.
1. What is wellbeing and how is it measured?
Broadly speaking, wellbeing is a measure of how well a person’s life is going. The UK government and other governments around the world have sought to use wellbeing as a metric of national performance. As such it is seen as an alternative to economic output, typically measured in terms of gross domestic product (GDP).
How wellbeing is defined and measured has been the subject of debate, including the extent to which wellbeing should be measured subjectively or objectively. Subjective wellbeing tends to be based on how someone thinks or feels about their lives. Objective wellbeing tends to be based on an external evaluation of criteria such as disposable income or experience of crime.
In November 2010, the then prime minister, David Cameron, asked the Office for National Statistics (ONS) to devise a new way of measuring wellbeing in Great Britain. He argued this was necessary to ensure the government could evaluate policies based on how they improved the quality of people’s lives rather than just on how they might improve economic growth. In 2014, the coalition government also established the What Works Centre for Wellbeing. This body publishes guidance on how the policies of the government and government agencies should be evaluated for their impact on public wellbeing.
Since 2011, the ONS has published a series of measures of public wellbeing covering Great Britain. These are compiled in the ONS’s measures of national wellbeing dashboard and include 44 indicators of both subjective and objective wellbeing criteria. Those subjective indicators include measures of personal wellbeing, such as the extent to which people feel satisfaction with their lives, whether they feel things in their life are worthwhile, their general happiness and their levels of anxiety. Data on personal wellbeing is collected as part of the ONS’s annual population survey. Further information on the development of the ONS’s metrics for measuring wellbeing and the debate concerning how wellbeing is measured is provided in the House of Lords Library briefing ‘Wellbeing as an indicator of national performance’ (5 March 2020).
On 12 March 2020, the House of Lords held a debate on the case for using wellbeing as an indicator of national performance. Baroness Tyler of Enfield (Liberal Democrat), who tabled the debate, argued maximising the wellbeing of UK citizens should complement economic growth as an aim of policy making. The then parliamentary under-secretary of state at the Department for Levelling Up, Housing and Communities, Baroness Scott of Bybrook, said the government had the “wellbeing of their citizens high on [its] agenda”. She said this included incorporating wellbeing as one of the criteria used in the green book, the government’s guide to the criteria used for government investment programmes. The current green book was published in 2020 and last updated in March 2022. It includes supplementary wellbeing guidance, published in July 2021.
1.1 What do recent wellbeing statistics show?
The most recent wellbeing indicators from the ONS were published in August 2022. They included figures for subjective personal wellbeing up to March 2022. According to these figures, between 2011 and the start of the Covid-19 pandemic, there had been a long-term improvement in personal wellbeing. However, the ONS also found that levels of personal wellbeing have remained below their pre-pandemic levels. The ONS reported the following between March 2019 and March 2022:
- People rating how worthwhile they feel the things they do in life are as very high fell from 35.6% to 32.2%.
- People rating their overall satisfaction with their life as very high fell from 30.5% to 25.5%.
- People rating their happiness yesterday as very high fell from 34.3% to 30.5%.
- People rating their anxiety yesterday as very low fell from 39.5 % to 34.1%.
These trends are reflected in the graphs below:
The ONS national wellbeing dashboard also included objective measures of wellbeing, such as experiences of crime, personal finance and health. Over the last five years for which figures were available, it found:
- There has been a decrease in incidents of personal crime in England and Wales. Incidents fell from 65.9 crimes per 1,000 adults in the year ending March 2015 to 49.8 per 1,000 adults in the year ending March 2020. Incidents of personal crime are crimes against the individual and only those relating to someone’s personal experience.
- There has been an increase in real terms median household disposable income in the UK from £29,237 in the financial year ending March 2016 to £31,385 in the financial year ending March 2021. This is based on 2020 to 2021 prices.
- The proportion of individuals living in households in the UK with less than 60% of relative median household income (before housing costs) has remained the same at around 16%.
Statistics on health normally included by the ONS in its wellbeing indicators were affected by the Covid-19 pandemic. The ONS reported healthy life expectancy had remained relatively stable between 2011 and the beginning of the pandemic in 2020. (Healthy life expectancy is the life expectancy for individuals who described themselves as having good or very good health in general.) In the period 2018 to 2020, healthy life expectancy was 63.6 years for females and 62.8 years for males in the UK. However, the ONS reported a decline in overall health satisfaction levels in the five years prior to the pandemic. It said health satisfaction levels had fallen from 49.6% in the period from 2014 to 2015 to 46.9% in 2019 to 2020.
2. How has the cost of living changed?
Since early 2021, the cost of living has risen sharply in the UK. According to the latest data published in September 2022, between February 2021 and August 2022 the annual consumer price index (CPI) inflation rate rose from 0.4% to 9.9%. The main drivers of inflation have been rises in the cost of energy and the price of consumer goods. The cost of borrowing has also risen, with the Bank of England interest rate rising from 0.25% in December 2020 to 2.25% in October 2022. In October 2022, the ONS reported 93% of adults in Great Britain said their cost of living had increased compared to a year ago. It also reported 79% said they were either very or somewhat worried about the rising cost of living.
The campaign group Carnegie UK has argued the rising cost of living is having a negative effect on public wellbeing. It said increased costs were resulting in more households moving into poverty, increasing inequality and leading to a negative impact on people’s mental and physical health. In May 2022, the Royal College of Physicians (RCP) published the results of a survey in which 55% of 2,001 respondents said their health had been negatively affected by the rising cost of living.
2.1 What has been the impact on low-income households?
The rising cost of living is having a greater affect on households with lower incomes. According to the ONS, the extent to which the rising cost of living has a financial impact on different households is based on factors including their expenditure patterns and their ability to absorb increased outgoings. In its July 2022 report on the cost of living, the House of Commons Work and Pensions Committee said the greatest impact of increased costs was being felt by the poorest in society. In May 2022, the think tank the Institute for Fiscal Studies reported lower-income households were experiencing higher inflation. It argued one of the reasons for this was these households tended to spend a higher proportion of their income on energy. In the same month, the think tank the New Economics Foundation said the rise in costs for the poorest half of households is nine times larger than for the 5% of households with the highest incomes. In June 2022, the campaign group the Joseph Rowntree Foundation published the results of a survey of those households in the bottom 40% based on household earnings. It found 60% of these households had gone without at least one essential since the start of 2022. These essentials included not heating their home, cutting down on the size of meals or skipping meals and not buying basic toiletries.
Prior to the recent increase in inflation, poorer households had already been identified as tending to have lower wellbeing when compared to other households. Writing in 2019, the Resolution Foundation argued lower-income households tended to have lower subjective wellbeing compare to higher-income households. In a report published in 2015, the Joseph Rowntree Foundation argued poverty could have serious long-term impacts on an individual’s wellbeing. This included the impact on self-esteem resulting from the negative perceptions of others towards people experiencing poverty. The Joseph Rowntree Foundation also said poverty was associated with an increased risk of anxiety and depression.
In June 2022, the Lancet published an analysis of existing studies on the relationship between lower incomes and poorer mental health and wellbeing. The study found it was probable that changes in income had a causal relationship with both mental health and wellbeing. Of the two, it found there was more likelihood of a causal relationship between changes in income and wellbeing. The authors of the report recommended on these findings that the aim of welfare policies should be to provide a safety net for the poorest in society.
3. How is the government addressing the cost of living?
Since Liz Truss became prime minister, the government has said its priority has been to increase the UK’s economic growth. In the foreword to his ‘Growth plan 2022’, published in September 2022, the chancellor of the exchequer, Kwasi Kwarteng, said the government’s goal was to reach a 2.5% trend rate for economic growth based on GDP. In her speech to the Conservative Party conference on 5 October 2022, Liz Truss repeated the government’s primary focus would be on “growth, growth, growth”. She argued that economic growth would secure improvements in the quality of people’s lives, saying:
Growth means more money in people’s pockets. It means businesses creating jobs. Growth means people can feel secure and they can plan for their future. Fundamentally, growth helps people fulfil their hopes and their dreams.
She went on to say:
Economic growth makes life better and easier for everyone—and it will level up our country. I know that is what people want to see. Economic growth will mean we can afford great public services such as schools, the police and the NHS.
However, at the same time as announcing the government intended to prioritise growing the economy and lower taxes, it has pledged a range of direct support for households. The chancellor has said his proposals to fix energy prices for households and non-domestic consumers would cost around £60bn over the next six months. The chancellor did not request that the Office for Budget Responsibility (OBR) produce a full fiscal and economic forecast to accompany the September fiscal statement in which this support was announced. However, the chancellor has confirmed the OBR will publish a report on his medium-term fiscal plan on 31 October 2022.
3.1 What is the government currently doing to support households with the rising cost of living?
Since the change of prime minister, the government has also introduced measures intended to support households with the cost of living, including:
- A reduction in class 1 and class 4 national insurance contributions by 1.25 percentage points from November 2022. The government has also introduced legislation to repeal the health and social care levy, originally set to be introduced from April 2023.
- Bringing forward to April 2023 the reduction in the basic rate of income tax from 20% to 19%. This was due to take effect from April 2024. The government has also said income tax thresholds would remain frozen until April 2026.
- The energy price guarantee, announced by the chancellor on 8 September 2022. This will cap unit prices and standing charges for domestic energy, limiting bills in Great Britain to an average of £2,500 a year for a typical household. Based on 2019 consumption figures, the government estimates an average bill for a purpose-built flat at £1,750 and £3,300 for a detached house. A separate scheme applies for households in Northern Ireland.
The government has also said it will introduce the energy bill relief scheme. The government said this would provide a broadly similar level of support for businesses and other non-domestic energy users for six months. The government has also said it will maintain the support for household energy bills announced earlier in 2022 by the then chancellor of the exchequer, Rishi Sunak. This includes the energy bills support scheme, which will provide a £400 discount to eligible households to their energy bills over the winter of 2022 to 2023 in Great Britain. Further information on these and other policy announcements is provided in the House of Lords Library briefing ‘The government’s ‘growth plan’ and the economy’ (30 September 2022).
The government has yet to confirm whether it will carry out the commitment made by Mr Sunak when he was chancellor to increase benefits, including universal credit payments, in line with the 2022 CPI inflation rate. On 4 October 2022, the House of Commons Work and Pensions Committee said it had written to the chancellor of the exchequer to confirm whether the government intended to maintain the commitment on uprating benefits.
3.2 How have those government announcements been received?
In her speech to the Labour Party conference on 26 September 2022, the shadow chancellor, Rachel Reeves, criticised the government’s handling of the economy. She accused the government of failing to sufficiently address increases in the cost of living. She also argued the financial markets’ response to the chancellor’s economic policies had led to an increase in mortgage payments, contributing further to the cost of living. The Scottish National Party’s shadow treasury spokesperson, Alison Thewliss, has also said the plans outlined by the chancellor in his growth plan would not be enough to protect households and businesses from the rising cost of living.
The chancellor’s growth plan has been criticised by the Joseph Rowntree Trust on the grounds that it did not provide adequate support to families on low incomes. It also argued the energy price guarantee announced by the chancellor fixed energy costs at a price that was already unaffordable for low-income households. However, the free-market think tank the Institute of Economic Affairs welcomed the proposals set out by the chancellor, arguing they would improve the conditions for economic growth.
Following the publication of the government’s growth plan, there has been volatility in the financial markets. This has led to an increase in government borrowing costs and a devaluation of sterling against the US dollar and other international currencies. On 14 October 2022, the International Monetary Fund (IMF) published its world economic outlook. The IMF forecast the UK’s economy would grow the fastest compared to other G7 economies in 2022, by 3.6%. However, it forecast that growth in 2023 in the UK would drop to 0.3%. The IMF described the UK government’s energy package as “sizable”. It also said the government could do more to ensure the support available was better targeted towards the most vulnerable.
4. Read more
- House of Lords Library, ‘Energy Prices Bill 2022–23’, 13 October 2022
- House of Lords Library, ‘Health and Social Care Levy (Repeal) Bill’, 12 October 2022
- House of Commons Library, ‘Rising cost of living in the UK‘, 28 September 2022