Rising costs projected to push 2.75 million into poverty

A new report by the Legatum Institute finds that rising costs will lead to an increase of 2.75 million in poverty versus pre-pandemic levels. Freezing energy prices at summer 2022 levels would shield 1.45 million of these people from falling into poverty.

The report is part of the Legatum Institute’s Autumn Series of papers on priorities for the new government.

The Social Metrics Commission has found that the number of people in poverty in the UK has been relatively stable at around 14 million since the year 2000/01. The total number of people in poverty in 2019/20 was 13.9 million.

This briefing finds that the total number of people in poverty in 2022/23 will be 15.2 million if the energy price cap was frozen at summer 2022 levels but would grow to 16.65 million if the scheduled price increases take place.

This would be a once in a generation rise in poverty. 2.75 million more people will be in poverty forecast energy prices rise goes ahead. 1.7 million more people will be in ‘deep poverty’. This would reflect an increase of over 30% on deep poverty levels when compared with 2019/20.

If the energy price cap is frozen at summer 2022 levels, 1.45 million people would be shielded from poverty and 750,000 people will be shielded from deep poverty. However, the number of people in poverty will still be over a million greater than pre-pandemic levels if there is no further intervention.

Baroness Stroud, the CEO of the Legatum Institute and a former Special Advisor in the Department for Work and Pensions says:

“The government should never have been backed into a corner where it is forced to inject billions to freeze energy prices. However, our data shows that drastic measures are necessary to stop over two and half million more people entering poverty. It is good to see that Liz Truss is taking this seriously and looking at energy price freezes. This will shield nearly a million and a half from poverty this winter. But if Liz Truss wants to stabilise poverty at pre-pandemic levels, she will need to go further and introduce a 10% uprating of Universal Credit as existing inflation will still hit the poorest hardest.”

“This crisis also carries lessons for the long-term. We must build a nation where all are protected from the conditions that drive poverty and where people and businesses are able to flourish, our energy policy should focus on an energy supply that is cheap, reliable, and resilient and where we are never again heavily dependent on authoritarian dictators for our energy provision. Sadly, this has not been our recent objective as we have sought to decarbonise without being sufficiently pro-active in the development of alternatives such as nuclear, gas and renewables. Going forwards, we must manage any energy transition in a way that protects the poor and does not lead to dependency on leaders like Vladimir Putin.”

This report adopts the Social Metrics Commission’s approach to poverty. As well as looking at incomes, this approach allows us to account for a range of inescapable costs that reduce people’s spending power, and the positive impact of people’s liquid assets on alleviating immediate poverty. In this report, we have factored in energy costs into that calculation, calculating the changing impact that the rising costs of energy have made over recent years.

For the simplicity of data modelling, the modelling makes a number of conservative assumptions. The paper does not factor in the additional costs associated with pre-payment meters, and it is modelled on the basis of annual average pricing rather than winter-specific pricing.

For more details, see the methodology section of the report.


Rising costs projected to push 2.75 million into poverty

Sep 2022

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