A perfect storm is killing the poor

We may all be feeling the impact of the credit crunch, and rising food and fuel costs – but it is those on the lowest incomes who are hardest hit.  Is it time to dust off and put into practice our preferential option for the poor?

The rising cost of living was the dominant issue in this summer's Glasgow East by-election. All the candidates were seeking to outdo each other in championing the cause of those suffering the effects of the rising costs of food and fuel.  Perhaps this not surprising in a by-election in one of the poorest constituencies in the country. But the evidence is clear and growing that the credit crunch is disproportionately damaging to those on the lowest incomes across the country.

In July the National Consumer Council claimed that up to five million of the poorest people in the UK have fallen below the radar of policymakers, and become the country’s "invisible poor".  Many scour cheap supermarkets for cut-price deals, buy damaged goods and hang around market stalls as they close to pick up vegetables discarded by traders.

In one case a woman ate noodles priced at 8p for lunch every day because she had only £10 a week to spend on food.  Others cut back on non-essentials such as sweets for their grandchildren or birthday parties.

So just how hard are people being hit by what economists persist in calling euphemistically a “slowdown”, but to others looks increasingly like a looming recession?

The most immediate impact of the credit crunch has been to increase the cost of mortgages: Higher interest rates have pushed up the cost of a typical £100,000 interest-only loan from £542 to £644. 

Worst still, the average household energy bill has nearly doubled over the past four years, from £590 a year in January 2004 to £922 this year.  Many are predicting further dramatic increases of up to £400 before the end of the year.

But for many the pinch is likely to be felt hardest in the weekly shopping bill. Staple foods like eggs, bread, frozen peas, butter and cheese have seen price rises of between 20 and 30 per cent in recent months. Mysupermarket.co.uk, which collates supermarket prices daily, puts the overall rise last year at 12 per cent, and estimate the average family's shopping bill has gone up by £750 a year.

Families across the country will be tightening their belts, but inevitably those on fixed incomes who will be hardest hit.

The elderly are particularly at risk if they turn off the heat in a bid to avoid spiralling fuel debts.  On existing estimates, between 25,000 and 30,000 older people a year die from fuel poverty - a figure that could easily increase if bills go up as expected. 

In the view of Ann Robinson, director of consumer policy at uSwitch, “Government needs to take concerted action on this. Together with the fuel companies they need to solve this problem once and for all. It is a scandal that in a rich country like the UK people are still dying because they can’t afford to put the heating on.”

One example of the kind of initiative the Government could invest in is an innovative scheme aimed at helping elderly people suffering from fuel poverty in Norwich.  Elderly people who receive a winter fuel payment, which is normally around £300, would be given the opportunity to invest up to £100 of it into energy-saving measures aimed at slashing their annual fuel bills.  The scheme is initially only targeting 20 households, but with adequate funding could potentially benefit thousands more.

Solutions to the escalating cost of food are harder to find.  The Prime Minister's recent exhortation that we should all "eat up our leftovers" sadly overshadowed the work of his own Strategy Unit on food poverty.  This found that the poorest 10% of households spend proportionately twice as much on food as the wealthiest. Low-income households also spend more on basic staples which are among the products to have seen the biggest price increases in recent months. So, increases in the cost of food still hit the poorest the hardest. 

And this translates directly into poor diets, poor health and reduced life expectancy.  People in the poorest parts of England can expect to live up to 10 years less than those in more affluent areas - and the gap is widening, according to government figures.

If all this wasn’t bad enough, the third element of the perfect storm hitting household budgets is escalating cost of petrol. And the latest Government tax furore is only likely to make matters worse. More than one million drivers of cars registered between 2001 and 2006 will see vehicle excise duty jump by up to £200 over the next year.

Whilst this may not come top of the list of grievances in Glasgow East, where car ownership is just 40%, for people living in rural communities – where public transport is virtually non-existent, and travel to work distances are greatest – car ownership is a must. 

Poverty in rural households is already rising faster than in urban households, with 1 in 5 rural households now living below the poverty line.  But with poorest rural households spending half of all their weekly income on essentials (food, housing, energy and transport), the rising costs of living will hit people living in rural areas harder still. 

To paraphrase Mr Micawber, rising costs and fixed budgets can have only one outcome – misery.  Personal debt in the UK – already the highest ever recorded in a G7 nation - is continuing to rise.

According to Credit Action, total personal debts now stand at a staggering £1.443 trillion. Excluding mortgages the average household debt in the UK is now £9,431.  And the situation is again exacerbated by the credit crunch, which is increasing the cost of interest repayments.

The credit crunch is not bad news for everyone.  Pawnbrokers have seen business increase by up to a quarter in recent months.  And Britain’s network of doorstep lenders – who routinely charge interest rates in excess of 180%apr – are also ready to cash in on the economic downturn.

One of the few hopeful signs on the horizon is the continued growth in Britain’s credit union movement.
Credit unions offer affordable loans with low and transparent interest rates. Most charge no more than 1% per month in interest. After years of slow growth, Credit Unions are benefiting from new Government investment and organisations are expected to grow in popularity as more borrowers are forced to seek new channels for credit in the coming years.

But possibly the most shocking of all the recent statistics to be released – and one which puts the others into sharper relief - is the fact that inequality in Britain is now at its highest level since figures were first available in 1961.

The richest fifth of households now take a bigger slice of national income than ever – 43% - whilst the share taken by the poorest families has dropped to just 7%.

Some would have us believe that inequality doesn’t matter. “When the tide is rising all the boats go up – just some more slowly than others.”  But the tide has now turned, and those at the bottom are having to carry an unequal share of the economic pain.

Ten years ago, in a far sighted report, the Catholic Bishops of England and Wales commented that: “There must come a point at which the scale of the gap between the very wealthy and those at the bottom of the range of income begins to undermine the common good.  This is the point at which society starts to be run for the benefit of the rich, not for all its members.”  

More recently, the Archbishop of Canterbury has called on the government to do more to protect the poorest and most vulnerable from the likely consequences of an economic downturn.  Speaking in a House of Lords debate, Dr Williams highlighted the fact that government targets on tackling poverty risked not being met and warned that in a period of economic decline the poorest in society were most at risk:

“So serious is this prospect that over 45 major NGOs are later this year launching a national campaign called Get Fair, which is aimed at once again galvanising the commitment to end child poverty by 2020, and at tackling the negative and unjust image of people living in poverty that prevails in a worryingly large percentage of the population.”

The credit crunch and its consequences amount effectively to a perfect storm for the poor – at home as well as overseas. If Make Poverty History rekindled our belief that a better world is possible, our task, and our challenge, is now to bring this hope back home.

A version of this article has appeared in The Tablet.

You can learn more about Get Fair at www.getfair.org.uk