Tackling child poverty - progress report 2022 to 2023: annex d - cost of living focus report

Impacts of the cost of living crisis on low income households

Key messages

For those living in low income households, and experiencing socio-economic disadvantage, the cost of living crisis has compounded their existing disadvantage. It has placed them at greater risk of poverty or pushed them deeper into poverty.

Low income households have very limited, if any, additional options to manage the ongoing cost of living crisis.

Early evidence suggests a significant impact on the mental wellbeing and health of adults and children living in low income households. While social relations and connections can provide support and assistance, this is not available to all.

Parents are struggling with acute financial pressures.

• Food insecurity rates are unacceptably high as inflation leads to rising food costs. There is evidence to suggest that increases to the Scottish Child Payment could have contributed to less severe food insecurity in Scotland compared to the UK.
• While fuel insecurity was a concern prior to this financial crisis, the current context has added more complexity, instability and deepening of poverty for those in lower income households. Despite a wide range of Government support around energy costs, projected fuel insecurity remains high.
• Housing costs are deemed to be one of the inflexible costs a household faces, with very little room for savings. The share of households experiencing a large rise in their mortgage costs will increase significantly as the cost of living crisis, and accompanying higher interest rates, persist.

Low income families went into the current cost of living crisis more vulnerable and in precarious positions to manage costs of living such as, food, heating and housing.^[44] These households often moved into the current crisis with an accumulation of financial distress^[45] and debt built up through the preceding years.^[1] For those already living in lower income households, and experiencing socio-economic disadvantage, the cost of living crisis is disproportionately affecting them while putting them at risk of poverty or being pushed deeper into poverty.^[46]

This chapter of the report explores how the cost of living crisis impacts upon families living on a low income. It considers the new challenges raised by the cost of living crisis, as well as the exacerbation of existing challenges as a result of rising inflation and higher costs. Specifically it looks at impacts on wellbeing, financial pressures, food insecurity, energy and housing.

Mental wellbeing

This section reports on the impact of the cost of living crisis on the mental wellbeing of families in low income households. It considers the growing sense of helplessness, the difficult decisions made by parents to protect their dependents (at the detriment of their own mental wellbeing) and the effects living in poverty can have for both parents and children.

A mental health crisis

There is evidence to suggest that the ongoing cost of living crisis is impacting on adults' and children's wellbeing.

A Scottish Government poll in May 2023 found that 49% of adults felt the cost of living crisis had negatively impacted upon their mental health. Further, for those adults who felt they were managing their household finances 'less well', the proportion whose mental health has been impacted negatively was just over three-quarters (76%) – compared to 54% for those 'getting by okay' and 24% for those 'managing well'.^[47]

It is not only adults struggling with their health and wellbeing. An online survey conducted by Save the Children and YouGov found a quarter of parents (24%) are concerned about their child's mental health as a result of the cost of living crisis, with this increasing to just over a third (36%) of parents who live in households with an income of £30,000 or less.^[48] A recent survey of 500 paediatricians working in the UK found three in five (60%) believed the cost of living crisis was having a negative impact on the health and wellbeing of children and young people. Indeed, a survey of 1,012 young people (aged 16-25 years) on behalf of UK Youth, by Censuswide, found more than half of young people (54%) felt their mental health had been negatively affected by the cost of living crisis. This included over a third (36%) saying they felt lonelier due to reducing their social activities in order to reduce their spending.^[49] While a survey of 1,045 young people (aged 11-25 years), by Young Scot, found seven in ten young people (70.4%) were concerned about their parents or carers in relation to the cost of living crisis. Further, half of the survey respondents (50.2%) self-reported a concern about their mental health and wellbeing due to the cost of living crisis.^[50]

Additionally, a review conducted by the Nuffield Foundation highlights the detrimental impact of poverty if it is persistent and experienced in the first three years of a child's life. In particular, it can impact upon parent-child relations, child development and wellbeing, and limit later life opportunities.^[51] This is important to bear in mind in the context of the past three years where low income families have moved from one crisis - the COVID-19 pandemic, to another - the cost of living crisis, and may have been living under financial strain during these crucial years of a child's life.

Indeed, the Poverty and Inequality Commission, in a September 2022 briefing, acknowledged that the cost of living crisis was becoming a mental health crisis.^[1] The cumulative impact of crisis after crisis,^[52],[45] the inability to buy enough food for their family and pay the necessary bills, alongside growing debt, meant increasing numbers of people were experiencing mental health concerns.^[1] These views have been supported by academics who report the links between financial struggles and mental ill-health.^[53],[54] Further, previous research has highlighted how financial stress is often found to be higher in larger families, minority ethnic families, and among those mothers with a young child.^[55]

A Scottish Government poll asked around 1,000 adults in Scotland, 'Thinking about the year ahead, which of the following are you most concerned about?'. Levels of concern were high for 'any personal financial / economy concern' (83% for all adults) and for 'any cost of groceries, energy fuel' (60% for all adults). These levels were high regardless of whether there were children in the household (82% and 59%, respectively) or not (84% and 61%, respectively). While concern was found to be slightly lower in May 2023 than it was in September 2022, levels still remain high.^[47]

A sense of helplessness

Various stakeholders have engaged with families in poverty to better understand their experiences throughout this ongoing cost of living crisis. The overarching finding across their reports is a sense of helplessness.

A Nuffield funded project, led by a group of academics from across England and Child Poverty Action Group, found that families who are living in poverty, when asked how they feel about the cost of living crisis, felt disbelief, anger, resignation and a sense of fatalism. The cost of living crisis has tested them to the very end of their budgeting resourcefulness and 'there is nothing left to cut back'.^[56] A JRF report highlights the uncertainty of the cost of living crisis for families, giving rise to a sense of helplessness.^[45] Previous research on the additional stressors of living in poverty highlights the impact of budgeting for parents. In particular, the need to effectively manage and plan in order to account for all expenditure. This level of detailed planning, often done to get by and mitigate the effects of poverty for their children, is an additional and time consuming stressor.^{[57],[58],[59]}

Difficult decisions for parents

Families reported having shielded children from poverty in the past, but in the current crisis they can no longer do so.^[60],[59] This brings not only concern and worry for their present, but also the future with uncertainty surrounding how the cost of living crisis will impact on their family's lives in the longer term.

Research to explore women's experiences of the cost of living crisis, further highlights this worry and anxiety about the future. For women with children, their focus was often on the emotional wellbeing of their children, ahead of their own.^[59]

Social relations and isolation

Another feature of the pandemic, which has a knock on effect to the current context, is a lack of social connectedness. The importance of social connections, especially in times of stress, is well-known.^[61]

During the pandemic, periods when stay at home regulations and social distancing measures were in place, led to limited opportunities for connections and had repercussions for feelings of loneliness, social isolation and mental wellbeing.^{[59],[62],[63],[64]}

During the cost of living crisis, there are other restrictions which are impacting on low income households,^[65] such as transport affordability;^[66] inability to afford leisure and social activities for parents and their children;^[59] and the prioritisation of other more essential costs, such as food, housing and energy.^[67] Further, while many of these challenges pre-exist the cost of living crisis, these are exacerbated by the current cost of living crisis and the tightening of household finances. For those living in low income households, who are struggling to meet essential costs, there can often be a need for support networks during times of stress and worry in order to provide emotional, and sometimes financial, support.^[59],[63] For those families who have strong support networks these were often emphasised as a fundamental source of support in terms of providing basic essentials, financial support and emotional support. Research by the Poverty Alliance highlights that some women acknowledged that they would simply not cope without this level of support.^[59]

Many families are not lucky enough to have a strong support network around them. There are particular priority family groups seen to be at higher risk of social isolation. These include parents with a baby under one, lone parents, and families with three or more children.

• For parents with a baby under one, peer support during this transitional period of life is often seen as crucial in developing reassurance, avoidance of doubt and building self-efficacy. Without opportunities, or with limited opportunities, to meet with other parents with babies, this can be detrimental to the mental wellbeing of the new parent.^[63]
• For lone parents, opportunities for social connections, for both them and their child, can be limited due to financial concerns, with reported rates of increased social isolation and poorer mental wellbeing for both parent and child.^[68] In a poll conducted by JRF, around three in four lone parents reported the cost of living crisis has had a negative impact on their social life.^[65] Further, in a research study completed by One Parent Families Scotland, a lone parent reported struggling to pay household bills and that there was just no money to spend on recreational, leisure and social activities each month. They reported feels of guilt for not being able to provide for their child.^[68]

Family relationships are also put under strain during times of financial hardship, as may be experienced during the cost of living crisis for low income households.^[69] For example, parents may be less able to respond to the needs of their children, or feel they are less able to do so, and this may impact upon parent-child bonding and attachment.^[69]

Financial pressures

Financial worries are a constant for many parents in Scotland. The Office for National Statistics (ONS) report that parents with dependent children had higher odds of experiencing financial vulnerability^[i] when compared with non-parents or parents not living with dependent children (data from September 2022 to January 2023).^[70] Further, their dataset reveals just over half of parents (54%) living with a dependent child report being unable to save in the next 12 month period, compared to four in ten (42%) non-parents or parents not living with a dependent child.^[70]

What coping mechanisms are still available to families?

Many stakeholders have engaged with lived-experience experts to understand what sort of coping mechanisms people are already employing:^[56] opting to buy unhealthier, but cheaper, dietary options;^[63] stopping direct debits to their energy company – putting themselves at risk of being cut off;^[71] asking wider family networks for financial support; going without in order to provide for their children;^[63] borrowing money (as evidenced above). For some, enduring the cold and hunger was seen as the only remaining option.^[56] Multiple reports highlight that households have very limited additional options to manage the ongoing crisis.

A deepening of poverty can restrict the number, or types, of choices families have at their disposal. A recent report on the everyday experiences of those on low incomes highlights how such 'choices' are often not choices. These are imposed on households by their situation. The decision between heating and eating, for example, can often come down to the practical matter of choosing electricity, as without electricity one cannot cook, anyway. Therefore, such "choices" should be reframed as households are ultimately disempowered.^[56] The impacts of this predicament are numerous, and reported in this review, but what is most apparent is the compounding effect the crisis has for physical and mental health.^[65],[72]

This growing precarity and vulnerability can be seen across multiple aspects of society. For example, Scottish Government analysis of the Scottish Welfare Fund highlights the increased demand for crisis grants (a source of financial support to assist with an unexpected emergency^[73]). From February 2023 to March 2023. There has been a 7% increase in the number of crisis grant applications, while crisis grant expenditure over this same period has increased by 6%.^[74] Repeated applications are increasing and demand is expected to continue to rise due to the cost of living crisis.^[75]

What are the impacts of constant financial pressures?

Some estimates have already been reported on the potential impact of an ongoing crisis on health outcomes. Modelling from Public Health Scotland, based on the relationship between income and mortality, estimates that even after the mitigating effects from the Energy Price Guarantee and Cost of Living Support payments, incomes would still fall by 6.5% (least deprived) and 5.3% (most deprived), in real terms.⁶⁹ This modelling approach then estimates the health impacts from long-term exposure to these income changes by SIMD. If incomes rise above inflation in the future then some of these impacts may be mitigated further.

The impact on mortality rates was estimated to be an increase of 2% (least deprived) and 8% (most deprived), as well as falls in life expectancy between 0.2% (least deprived) and 1.4% (most deprived).^[69] This also highlights how people's health in the most deprived areas is more sensitive to changes in relative income, seeing substantially larger negative health impacts, despite slightly lower relative income drops than those living in the least deprived areas.

Amongst low-paid workers, three-quarters reported that a pay rise would improve their wellbeing, mental health and financial situation – with increased levels of pay often the most prioritised action that both government and employers could do to assist them through the cost of living crisis.^[76]

Food insecurity

Access to affordable food is essential to maintaining a reasonable standard of living. High prevalence of food insecurity indicates that costs are too high, incomes are insufficient or both.

What do we know about levels of food insecurity?

In the period 2019-2022, 8% of Scottish people lived in households with low or very low food security. For children, low or very low food security rises to 13% and to 27% amongst children who live in low income households.^[19]

These latest statistics may not fully reflect the effects of the cost of living crisis due to the timing of data collection. In order to understand potential direction of travel, we can also examine food bank usage. Recent figures from the Trussell Trust highlight the levels of food bank use between April 2022 and March 2023, with 259,744 emergency food parcels distributed through their network in Scotland during this period, including 87,968 parcels to children. This represents a 30% increase from the same period the previous year (2021-22) and a 50% increase from the same period pre-pandemic (i.e. 2017-18).^[77]

The Trussell Trust note, though, that increasing the value of the Scottish Child Payment, and extending eligibility, may have contributed to less severe increases in food bank use in Scotland, for some household groups, compared to elsewhere in the UK. They report that, between November 2022 and March 2023, the increase in the number of food parcels provided to children was 17%, compared with 42% for England.^[77]

Escalating food prices are contributing to growing levels of food insecurity as inflation remains high.^[78] The annual inflation rate for food and non-alcoholic drinks was reported to be 19.1% in April 2023.^[4] This represents a significant increase in the cost of regular shopping baskets for families. Recent research by Nourish Scotland^[79] drew on lived experience to construct shopping baskets that would adequately meet the needs and preferences of different family types; they calculate that the cost of these baskets, as of December 2022, would account for between 25% and 37% of disposable income. While the Office for Budget Responsibility (OBR) expect inflation to continue to fall in 2023,^[6] there is expected to be a lag in food price inflation in the short term.^[78]

What are the impacts of food insecurity?

The effects of food insecurity are compounding for families. The Poverty Alliance reports some women skipping meals or eating less. In some cases, where there was a reported pre-existing health condition, women were unable to afford shopping to support this condition.^[59] Over four in ten (44%) lone parents report difficulties in affording food, with this remaining at a similar rate for lone parent families in paid work (41%).^[68] Indeed, paid employment is often not enough to ensure an adequate standard of living for families. Polling completed by the Living Wage Foundation, in January 2022, found that 32% of respondents earning less than the real Living Wage had skipped meals regularly due to financial costs (compared to 27% in December 2020).^[76]

For families and children the effects of food insecurity, and not having enough to eat, is profound and has potentially long term impacts. Public Health Scotland (PHS) report the potential damaging effects of inadequate nutrition on the long term health outcomes for children.^[69] The Nuffield Foundation highlight also the mental challenge involved in going without food for parents.^[56] Similarly, The Food Foundation notes how food insecurity can impact upon every aspect of a child's life from their education, social interactions and social-cognitive development to their physical and mental wellbeing. They report that for those parents/carers who had experienced food insecurity in the past month, almost eight in ten were worried about the impact of insufficient food on their child's physical health (78%) and mental health (76%).^[80]

What can be done?

A study by the University of Sheffield highlights the following priorities to assist in tackling food insecurity:^[81]

• Cash-first solutions. The report argues that this provides households with increased agency and dignity, in comparison to receiving food aid. Further, research in the Scottish context surrounding free school meals advocates for a cash first approach in order to show an extension of trust.^[82]
• Whole system approach. While food insecurity requires assistance in the short-term, there is also a need for longer-term approaches to prevent hardship and support reliable access to food.

Drawing on this learning and following a consultation that received strong public support, the Scottish Government published Cash-First: Towards Ending the Need for Food Banks in Scotland on 5 June 2023. This details the nine targeted actions the Scottish Government will take over the next three years, alongside other public bodies, local services and anti-poverty organisations, to improve the response to crisis and start to reduce the need for emergency food parcels. The learning from these actions will help to identify scalable interventions that move us closer towards our longer-term ambition of a Scotland without the need for food banks. This is a cornerstone of our commitment to tackling poverty, progressing the right to food and achieving our Good Food Nation ambition.

Energy

One of the key drivers of the cost of living crisis has been significant increases to the price of gas and electricity.

What support has been provided?

The UK government response was to introduce the Energy Bills Support Scheme (EBSS) and the Energy Price Guarantee (EPG). The EBSS was a universal policy which provided all households with a non-repayable discount to help with their energy bills over the winter of 2022/2023.^[83] The EPG was introduced in October 2022 and limits the price households pay per unit of gas and electricity. While the price cap is lower than current prices, energy prices remain substantially higher than pre- 2021. For example, prices from July to September 2023 are estimated to be over 60% higher than during the winter 2021-2022.^[84]

What are the impacts for low income households?

Despite the package of support introduced to help households manage rising energy costs, it appears lower income households still struggled with energy insecurity over the winter 2022-2023. Analysis from ONS highlights that energy insecurity was more of a concern for lower income households than higher income households during the winter of 2022.^[85] A quarter (24%) of adults were reporting occasionally, hardly ever or never being able to keep comfortably warm during that past winter.^[86]

In Scotland, modelling from the Scottish Government estimated that in April to June 2023, 37% of all households (and 34% of all households with children) would be in fuel poverty.^[87]

However, energy insecurity has been a concern prior to the cost of living crisis and the COVID-19 pandemic. Research conducted during the winter 2019/20, exploring the lived experiences of fuel poverty, found that households in the lowest income bands were the most likely to be struggling to keep their home warm – often limiting heating use and adopting coping strategies to stay warm.^[88] This illustrates how the cost of living crisis has added more complexity, instability and the potential for deepening levels of poverty to the lives of those in lower income households.

Varying experiences for families

The way households pay for their energy plays an important role, too, in the affordability of energy. Lower income households are more likely to be on pre-payment meters.^[89],38 While these methods are often preferred due to the immediacy and transparency of energy usage within the household,^[90] they are also more expensive. This results in a 'poverty premium' where lower income households face additional costs compared to those in higher income households.^[89] A research report from the Poverty Alliance highlights that half of the women in their study were on pre-payment meters. Thus, these participants were affected by the poverty premium and at risk of having no access to energy if they could not afford to top up the meter.^[59] Further, ONS analysis reports a link between adults who use pre-payment meters to pay for their energy with financial insecurity. A quarter of adults (26%) using pre-payment meters reported using credit more than usual (e.g. credit cards, loans) due to increases in the cost of living (compared to 14% for those who pay their energy through a non pre-payment method).^[70] However, in the UK Government Spring Budget there was a commitment to bring energy charges down for households with pre-payment meters (bringing charges in line with prices for direct debit customers).^[91]

The same challenges, already reported for priority family types, continue to be evident.^[92] Particularly for those with a disabled person in the household who may be reliant on gas/electricity to support an individual's condition.

Rural living can also have a significant impact on additional living costs, with homes in rural areas more likely to rely on oil as an energy source. This is non-regulated and therefore can be more costly.^[93] Research from the Poverty Alliance on women's experiences of the cost of living crisis illustrates the concerns of those living in rural areas, with rising energy costs seen as a daily concern.^[59]

Housing

Some households had to make compromises during the cost of living crisis on how much they spent on food or energy. However, reducing housing costs is, in many cases, not an option for families. Being able to afford a home is a current and significant issue for many.^[1]

Indeed, according to recent YouGov polling for the Scottish Government, in May 2023,^[ii] 11% of respondents across all tenures were concerned about paying their mortgage or rent in the next 2-3 months. This number rose to 21% for those in private renting. Private renters were also more likely to say that they were struggling (a lot / somewhat) to pay for household bills, including energy bills and rent (38% of private renters compared to 24% of all tenures as a whole) and that they were managing less well financially (29% of private renters compared to 22% of all tenures as a whole). There has been no significant improvement in these figures since November 2022.^[47]

For owner-occupiers, increases in interest rates to control inflation have led to a significant increase in mortgage costs: for example, the cumulative 4.4 percentage point increase in the Bank of England rate between November 2021 and May 2023 is estimated to have increased the monthly payment on an existing tracker mortgage rate in Scotland by around £250 on average.^[iii] Although around 87% of outstanding mortgages in the UK are on fixed rates,^[94] which meant that these households were not immediately affected by higher mortgage rates, the vast majority of fixes in the UK are of five years or less. Thus, the share of households experiencing a large rise in their mortgage costs will increase significantly as the cost of living crisis, and accompanying higher interest rates, persist.

The impact of the cost of living crisis is of particular concern for renters, since on average they have lower household incomes and higher levels of poverty and so are more vulnerable to economic shocks, than owner occupiers.^[95] Over the period from 2018-2020, 63% of social rented households and 40% of private rented households did not have enough savings to cover even a month of income at the poverty line, compared to 24% of households buying with a mortgage and 9% of households owning outright. Thus rented sector households entered the cost of living crisis in a more vulnerable position than owner occupiers.^[96]

In recognising the complex situation facing those in rental accommodation, the Scottish Government announced emergency legislation (the Cost of Living (Tenants Protection) (Scotland) Act 2022), in September 2022. This included a temporary freeze on in-tenancy rent increases (this moved to a rental cap of 3% in April 2023) and a moratorium on the enforcement of rental evictions orders.^{[iv] [97]} The initial rental freeze received a mixed response. While it has been welcomed in terms of providing support for tenants, it has been viewed by private landlord representative groups as having a detrimental impact for private landlords.^[98],[99] However, as reported by Audit Scotland, the provision of affordable housing is fundamental to the prevention of child poverty as housing is one of the most burdensome costs for families.^[100]

While the legislation has provided protection for existing tenants, some renters entering new tenancies have been faced with substantial increases in market rents, particular in urban areas, with Citylets reporting an increase in new-let rents of 12.4% in Q1 2023.^[101]