Inflation gap widening between rich and poor

Analysis by Legal & General shows that the cost-of-living crisis has hit the poorest households hardest, deepening existing economic inequalities. The firm’s Rebuilding Britain Index shows that 95% of working UK households have experienced a real terms pay cut over the last 12-months.

The report finds that the cost of living crisis has hit the poorest households hardest, deepening existing economic inequalities. It also showed that lower income households are more severely affected, as 99% of households with income of under £20,000 have taken a real terms pay cut, this leaves nearly one in two households (47%) concerned about being able to keep up with rent and mortgage payments over the next 12-months.

Over half (54%) of UK households have reduced day-to-day spending in response – a further 51% expect it to decrease still further over the next year.

Whilst the lowest income households in the UK are most likely to feel that their quality of life is declining (29%) vs only 13% in the highest income households. There was a consensus amongst respondents that long-term solutions, such as investment in energy efficient homes and offices (59%) and the creation of higher wage employment (52%) are the most attractive solutions to tackling the cost of living crisis

Sir Nigel Wilson, Group CEO of Legal & General said “Our research across 20,000 UK households exposes the stark choices that inflation is forcing on many people in Britain. Levels of employment continue to improve but real wages are lagging behind. It is particularly concerning to see that not only are the key RBI measures such as access to housing and healthcare stalling or falling nationwide, but that the cost of living pressures are widening the inequalities that the Levelling Up agenda is aiming to address.”

“Recommitment from Government on the policy itself is welcome news, as are the new and additional Budget devolution settlements.  But this needs to be doubled down with ambition and collaboration to drive more private sector economic investment and modernise planning to produce a meaningful and lasting impact. Smaller individual projects, sprinkled across the UK, that are not joined up, are unlikely to be effective or efficient as they don’t address the underlying causes of regional and local inequalities. It is our belief that a more joined-up approach, through public-private sector partnerships will result in the type of impact that is really needed in the places that need it the most.”

When surveyed on how household income has changed over the previous 12-months, only 5% state that it has risen in line with or above inflation. A further 19% state it has increased below inflation, while 21% have experienced a decline in income over this period. This is hitting lower income communities the hardest, and widening the gap between the UK’s wealthiest and poorest households. Only 1% of those with under £20,000 household income have experienced an increase at or above inflation, while a third (33%) have experienced a pay cut.

As a result of cost of living pressures, over half of households have cut their spending (54%) over the previous 12-months, with consumer goods, tourism and leisure spend hardest hit.

However, with 66% of households agreeing that the cost of living crisis is far from over, for them personally, the research suggests that we should expect continued depressed levels of household discretionary spend throughout the course of 2023. Indeed, 51% of households expect their discretionary spending to decline over the coming year – with only 8% expecting it to increase.

 % of real terms pay changes per household income

	NET	Under £20,000	£20,000-£39,999	£40,000-£59,999	£60,000-£79,999	£80,000-£99,999	£100,000+
Real term decrease	95%	99%	97%	95%	88%	91%	83%
Real term increase	5%	1%	3%	5%	12%	9%	17%

 % of households that reduced spend over the last year by category

Type of goods / services	% decreased spend in the year
Consumer Goods (e.g. clothes, shopping)	54
Leisure Activity (e.g. cinema visits)	50
Tourism Activity (e.g. family holidays)	49
Birthdays & Christmas	43
Memberships (e.g. gym memberships)	41
Entertainment (e.g. Netflix subscriptions)	36