The Cost of Living Crisis in Scotland: analytical report

Chapter 6: The Impact on the Delivery of Public and Third Sector Services

Introduction

This chapter provides illustrative examples from across several different public and third sector services, with the aim of demonstrating the range of challenges being faced as a result of increased costs. These examples are not exhaustive and will not necessarily be representative of all services in these sectors. The effects are grouped into: demand for services, access to services, staffing and workforce, and the overall sustainability of services.

Demand for Services

Health and social care

Actual and anticipated increased demand for NHS services and both formal and informal care and support, as a result of the cost of living crisis, are highlighted in polling, expert commentaries and journal articles. A common theme emerging from these sources is the increased level of anxiety being felt within the population in response to the crisis. The need for more mental health and wellbeing support, alongside practical financial advice, will be an immediate and medium term effect. Longer term impacts on services will arise due to worsening physical health and related health and care needs.

In a Royal College of Physicians' survey of 2,000 UK adults conducted in spring 2022, just over half of respondents indicated that their mental and/ or physical health had worsened due to the cost of living crisis. A quarter of these individuals had also been told this by a medical professional.^[124] This finding was very similar to recent Scottish Government polling of around 1000 adults in Scotland which found that almost half of respondents felt their mental health had been affected by the cost of living crisis and a third their physical health.^[125] JRF have also highlighted that half of all adults in Scotland reported a negative impact on their mental health due to the cost of living crisis, with this proportion higher in low income (59%) and very insecure households (82%).^[101]

The Institute of Health Equity's recent report on fuel poverty and cold homes notes the link between cold homes and an increased risk of respiratory and cardiovascular illnesses, poor mental health and unintentional injury.^[126]

Importantly, individuals with long-term conditions and disabilities often have particular needs around home energy use (see Chapter 5). The UK's energy regulator has been warned by a regional NHS executive that "clinically vulnerable people are being admitted to hospital as a result of having their energy supplies disconnected".^[127]

Third Sector Services

Third sector organisations, are also facing a deeply challenging combination of increasing needs among the communities they work with, rapidly rising operating costs and reductions in fundraising income.

Findings from Wave 4 of the Scottish Third Sector Tracker,^[128] which surveyed 429 organisations in July and August, describes these increasing pressures. Respondents were asked whether demand for their services or programmes had changed since April 2022. 64% of organisations reported that demand had increased, with 23% saying it had significantly increased. Just 9% of organisations felt that demand for their services had decreased. Organisations largely still felt able to meet most increased demand, with 80% saying they had been able to meet most or all of the increased demand to date, and 19% saying they were able to meet some or none. Respondents did note, however, that they expect demand to increase significantly in the winter as the impacts of rising energy costs and debt begin to be felt more deeply within their target groups and communities.

Scottish Third Sector Tracker respondents working directly with service users were asked which needs or concerns they considered to have worsened in the period since April 2022. 71% of organisations said they were concerned about worsening that mental health among their service users, while 79% of organisations highlighted increasing financial needs. Several organisations mention the rise in debt that the people they work with are taking on, many to unsustainable or crisis levels. As a result of financial worries, organisations reflect concerns about people being increasingly vulnerable to scams or crime, having to sell assets to pay for essentials, or experiencing increased levels of family breakdown or domestic abuse.

The Poverty and Inequality Commission have also reported increased demand for third sector organisations. After conducting nine visits to community organisations from June-August, with the support of their Experts by Experience Panel, they reported that most organisations described increased demand as a result of both the cost of living and the continued effects of Covid-19. One organisation cited the removal of the £20 Universal Credit uplift as a specific trigger, which necessitated them closing their waiting list for three months. Some described a change in profile of those seeking help, with more people experiencing in-work poverty and whose income is marginally above benefit thresholds (a group highlighted in Chapter 5). Organisations cited food costs, energy costs, debt, and transport costs as specific issues.^[129]

In May, the Trussell Trust and Independent Food Aid Network (IFAN) highlighted that many food bank teams now found demand outstripping their resources. They reported that food banks were rationing resources and trying to distribute foods that can be eaten without the use of an oven, and emphasised that 1 in 3 parcels issued in the Trussell Trust network over the previous year were for children.^[130] This increased demand is demonstrated in an August survey of 84 organisations operating 169 independent food banks across England, Scotland and Wales, 90% of whom had seen demand rise yet further since April (when 93% had reported an increase since the start of the year). 68% said they may not be able to support everyone who needs their help or may need to reduce the size of their food parcels. 35 of these organisations reported a 25% increase in the percentage of people supported for the first time in April-August 2022 compared with last year, while 22 had seen an increase between 25% and 50%, and 22 an over 50% increase.^[131] Citizens Advice Scotland (CAS) have reported that while in 2021/22 36% of the finance and charitable support advice they provided was food bank referrals and shopping vouchers, this figure stood at 45% in the first quarter of this year.^[132]

CAS have also highlighted an increase in people seeking advice on paying for utilities. Comparing the first quarter of this year with 2022/21, they report a 122% increase in unique page views of their webpage 'grants and benefits to help pay energy bills', a 120% increase for 'struggling to pay energy bills', and a 92% increase for 'can't afford to top up prepayment meter'.^[132]

Demand has also arisen for 'warm banks' – several local authorities across Scotland are examining options for using heated public buildings to ensure that people can stay warm through the winter as their energy bills rise. Glasgow City Council have already voted unanimously to establish these, with suitable sites currently being sought out.^[133] Data from the Third Sector Tracker also suggested that third sector organisations expect increasing demand to provide 'warm hubs' for their target groups and communities during the winter.^[128] This is, however, controversial as it implies the public and third sector should provide extra support instead of adequate resources for heating being made available to households.

Public Transport

Demand for public transport may also change as a result of increased costs. Wave 23 of Transport Scotland's Public Attitude Survey (July 2022) found that 32% of respondents were struggling to afford their travel costs – an increase of seven percentage points compared to the previous wave of the survey undertaken in May. Importantly, those with a long-term limiting health condition or disability, women, and those in socioeconomic grouping DE were more likely to say they were struggling to afford their travel costs. 57% of respondents agreed that the cost of fuel had caused them to drive less frequently or for fewer miles, with 34% agreeing it had led them to switch transport mode for some or all of their journeys. Participants were not asked what mode of transport they had switched to, and so it is not possible to estimate the impact this will have on public transport networks.^[134]

Criminal Justice

The cost of living crisis may increase deprivation levels and volumes of Adverse Childhood Experiences (ACEs), which may have significant long-term effects on crime and the criminal justice system.

Research consistently shows a strong association between ACEs and crime. People who experience multiple ACEs are more likely to engage in risk taking behaviours which are harmful to health and sometimes associated with criminal behaviour.^[135]There is a strong inter-relationship between offending, justice contact and poverty in the teenage years and early adulthood, with poverty during childhood and adolescence directly relating to involvement in youth violence, resulting in police charges and youth justice supervision, which in turn predicts poverty in adulthood.^[136]

Emergency Support

Since the beginning of the Covid-19 pandemic, the Scottish Welfare Fund has seen a considerable increase in demand, particularly in crisis grants. This increased demand continues, reflecting the cost of living crisis. From the beginning of April until the end of August local authorities have provided around £8.4 million in crisis grants, 11% higher than during the same period last year.^[137]

Access to Services

While demand for certain public services is rising, there is also evidence of emerging barriers to access.

Health and social care

Increasing travel costs are likely to affect people's ability to attend appointments and support services. A recent survey of 500 respondents from across the UK noted that 80% of people with cancer said they are worried about the cost of travel to their hospital appointments, with over a third saying they worry 'very much'.^[138]

The ability of services to heat their premises and retain sufficient staff could affect opening hours and in turn affect access. Access also continues to be affected by delays incurred and lengthened due to Covid-19.

Digital Access

As well as physical access to services, there may be implications for digital access. A YouGov poll conducted in May 2022 indicated that around one fifth of UK consumers would cut back on their data packages if their household budget was coming under pressure.^[139] CAS have also reported on a recent poll which found that 15% of people in Scotland who ran out of money before payday had gone without internet access once or more, amounting to almost 240,000 people. In these cases, people may turn to CAS for help with Universal Credit journals or job applications.^[140] Reductions in access to digital services can have a range of adverse outcomes, from not being able to find information and support to effects on educational outcomes for children, young people and adult learners.

Domestic Abuse Support

Scottish Women's Aid have recently reported that domestic abuse support services are still dealing with an increase in demand following Covid-19 (e.g. Scotland's National Domestic Abuse and Forced Marriage Helpline reports an 18% increase in call volume compared to the previous year)^[141] and reports are now emerging of refuge services facing increased strain as a result of the cost of living crisis. Hestia, a charity who deliver support services in London and surrounding regions, has reported that in the first three months of 2022 their referral line saw a 30% increase in requests for accommodation.^[142]

While the increased cost of living is already affecting demand for domestic abuse support services it is also having access implications. Scottish Women's Aid have recently stated that the crisis is now "creating new barriers and accentuating existing issues that women face when leaving a relationship with an abusive partner".^[141] They cite research with victim-survivors conducted by Women's Aid England, in which almost 73% of respondents, from a sample of 137 women, said the cost of living crisis had either prevented them from leaving or made it harder to do so. Of these respondents, 67% said this was due to the immediate cost of leaving, and 69% cited not being able to afford ongoing living costs on a single income.^[143]

Staffing and Workforce

Falling public sector pay

Earnings growth in the private sector has been significantly stronger than in the public sector. However, pay in both sectors has failed to keep up with rising inflation. As Figure 14 demonstrates, total nominal pay in the private sector across Great Britain rose 6.8 per cent year-on-year in the 3 months to August 2022 whereas total nominal pay in the public sector rose only 2.4 per cent over the same period. Real pay has fallen by 5.6% in the public sector and 1.6% in the private sector. Recent public sector pay settlements may mitigate some of this but inequalities are likely to remain.

Source: ONS Average Weekly Earnings and ONS CPIH Inflation

In June, Unison conducted a survey of public service staff earning £20,000 or less in Scotland, England and Northern Ireland. 95% of respondents were finding it increasingly hard to pay their household bills, and 31% were skipping meals. 84% of those surveyed stated that rising bills and pressure on household budgets was having a negative impact on their mental health.

Increases in fuel costs have also made it more expensive for staff to get to work, and unsociable hours such as those worked by individuals in health and social care often mean that public transport is not an option. A particularly acute issue exists for those who drive as part of their job, for example health visitors and district nurses. All of this is exacerbated by rurality and shift working.

Staff shortages

Given these rising costs and falling pay, the cost of living crisis poses considerable challenges not just for workers, but also public and third sector services in their ability to recruit and retain sufficient skilled staff. For example, the latest NHS Scotland workforce statistics show that at the end of June there were over 6,000 nursing and midwifery vacancies across NHS Scotland – up from 4,845 in June 2021, a 24% increase.^[144] Wider factors may also be affecting this as low levels of unemployment are exacerbating staff shortages in most parts of the labour market.

Within social care there are particular challenges around recruiting and retaining staff. At the end of 2020, 36% of care services in Scotland reported vacancies, with shortages particularly pronounced in areas such as care homes (55%) and care at home (59%).^[145] The Scottish Government has provided additional funding over recent years to increase pay for social care workers,^[146] but many still report difficulties with living on their income. As well as paid staff and carers, the cost of living affects the many unpaid and informal carers providing vital support across the country (as outlined in Chapter 5). Should they become unable to provide this support, pressure on the formal sector would increase.

Local authorities are also experiencing staff shortages. For example, around 18% of local authorities reported that a lack of applicants made it hard to recruit school meals staff, while around 15% reported a lack of suitable skills among applicants, and another 15% reported that they received a lower quality of applicants than before. Overall, 61% of local authorities said recruitment challenges had got worse over the last 6 months^[147].

The Scottish Third Sector Tracker highlights how ongoing challenges relating to workforce and volunteering are being intensified by the cost crisis. Overall, 44% of organisations said that their biggest current challenge related to staffing or volunteering concerns, while 72% of organisations had at least one concern relating to staffing or volunteering in their top three challenges. 69% of organisations which employed staff said that their staffing costs had increased since April 2022 – compared with 53% in March/April. 35% of organisations said volunteer shortages was one of the top three challenges they have faced since April 2022.^[128]

Pay settlements and industrial action

The devolved public sector employs around 447,000 full time equivalent staff (around a fifth of Scotland's workforce). This includes not just government employees but also wider public sector bodies such as the National Health Service. The total devolved public sector pay bill is over £22 billion per year, the majority of which supports the running of frontline public services.

The Scottish Government's role in public sector pay negotiations to date has focused on maximising the support to the lowest paid, who are most vulnerable to increasing energy and food costs. As a result of this approach, public sector pay deals in 2022-23 are, so far, costing around £700 million more than originally budgeted for. Pay deals have so far been agreed for key public sector employers such as Local Government, train drivers and the police.

The control and management of workforce costs remain crucial for the sustainability of public finances in the medium to long term. The Resource Spending Review highlighted the need to reset pay and workforce expectations, and announced a broad aim to maintain paybill costs (i.e. all staff costs, as opposed to pay awards) at 2022-23 levels, and a pathway to return the overall size of the public sector workforce to around pre-Covid levels, recognising expansion would be required in certain key areas of service delivery.

The Scottish Government will need to strike a balance between creating financial headroom for direct policy interventions to support cost of living such as doubling the fuel insecurity fund, the increase in income to the public sector workforce, particularly those who are lowest paid, through higher wages, and the fiscal sustainability challenges of further investment in public services.

It is also important to consider that public sector pay negotiations may lead to disruptions in the delivery of public services, and some core services delivered by the private sector, if industrial action is taken. We have already seen strikes by railway and refuse workers, which significantly affected essential public services. Pay negotiations are still ongoing for other areas of the public sector, such as teachers and NHS staff, and several unions have highlighted the possibility of future industrial action.

Sustainability of Services

Rising costs may also influence the sustainability of public and third sector services, particularly in the medium and longer term. The sustainability of Scotland's public services was considered in depth by the Christie Commission^[148] which published its findings in 2011. The economic and social challenges of that period have clear resonance with the current conditions this Government and Scotland's public services are experiencing today.

Scottish Government Spending on Public Services

The effects of inflation means that the Scottish Government 2022-23 Budget is already worth £1.7 billion less in real terms than it was in December. The UK Government's existing spending plans, coupled with latest inflation forecasts, mean that at the time of writing it is anticipated that the Scottish Government's funding could fall by up to 4.5% in real terms this year. Looking ahead over the remaining term of this Parliament, inflation will continue to increase pressures on budgets, with an expanding share of the budget required to deliver essential public services and statutory policy commitments via:

• increased energy costs, even after accounting for support through UK EBRS
• increased contractual obligations and higher prices when they are renegotiated
• increased costs of delivering statutory commitments, e.g. social security
• increased cost of higher than anticipated, pay settlements (as noted above)

Broadly speaking, spending power falls with higher inflation. Nevertheless, there remain significant uncertainties over how and when inflation will affect budgets. For example, although inflation is reflected in pay negotiations, there are other factors to consider – so pay uplifts do not track inflation. Inflation also produces a range of indirect impacts, such as the impacts on demand discussed within this report. Potentially mitigating some of these effects, there may be public services where there are opportunities for reform of delivery.

Scottish Government Spending on Infrastructure

Inflation has also affected the purchasing power of Government capital funded infrastructure that provides the settings for the effective delivery of public services, with significant cost increases on the common materials used on construction projects. According to BEIS' Monthly Statistics of Building Materials and Components commentary of August 2022, the material price index for 'All Work' increased by 24.1% in July 2022 compared to the same month the previous year.^[149] There are also reports warning that construction inflation of 5% year-on-year may become the norm and reports continue to circulate stating that further material price increases will continue in the short to medium term.^[150] Going forward, labour shortages, materials supply difficulties and material cost increases when combined with available budgets, could result in a reduction of projects coming to market and of those that do, delivery may take longer than was envisaged.^[150]

Health and social care

Running a sustainable NHS and care sector is increasingly challenging in the face of rising fuel bills, food and consumable costs for service providers, and issues for staff affecting recruitment and retention. Nine in ten NHS leaders of services provided in the community in England say they are either extremely or moderately concerned about their organisation's ability to deliver all services due to staff shortages related to recent increases in the cost of fuel.^[151] Directly comparable data is not available for Scotland but there may be similar concerns amongst NHS leaders here.

GP and dentistry services, which are predominantly based upon an independent contractor model, are facing the same challenges as other healthcare providers plus issues specific to this model of delivery. There is a risk that practices will have to reduce services or close, and particularly in dentistry, that they may withdraw from NHS provision. A recent opinion piece in the Dentistry Journal sets out issues being felt within the profession.^[152] Moves by practices towards private-only dental provision may leave people in areas of the country unable to access NHS services.

The Third Sector

Charities Aid Foundation (CAF) reported earlier this year that the number of people across the UK donating to charity has significantly decreased. From January-April 2022, an estimated 4.9 million fewer people reported having donated to charity or sponsored someone over the previous year, compared with the same months in 2019. CAF also estimate that the total amount given to charities in 2021 was £10.7 billion, compared to £11.3 billion in 2020. The Scottish Council for Voluntary Organisations have warned that rising costs are putting lifeline services at risk, noting that from February-April 2022 only half of organisations were able to meet or exceed their planned programmes of service.^[153]

Wave 4 of the Scottish Third Sector Tracker^[128] provides more insight into the ways the cost of living crisis is affecting on operational costs and delivery within the third sector. 93% of respondents said they were experiencing rising costs in at least one area of their business, compared with 86% in Wave 3 (March-April 2022). Cost rises were reported across all aspects of operations, with significant increases in the percentage of organisations reporting rising energy costs, rental costs, transport costs, staffing costs and cost of materials/supplies, when compared with the Wave 3 findings.

Organisations that reported rising costs in the Tracker were asked to what extent their ability to deliver their core services and activities had been negatively affected by this. 9% said that their services and activities had been 'significantly affected', while 43% said their ability to deliver their core services had been significantly or moderately affected.

Organisations were also asked what their top three challenges had been since April. 'Rising costs and inflation' was the most frequently-selected challenge, with 37% of organisations placing it in the top three, a significant increase from 29% in Wave 3 (March-April 2022). 'Volunteer shortages' was the second most frequently-selected challenge, and 'Difficulty fundraising' was the third. Overall, 62% of organisations surveyed had at least one financial concern among their top three challenges, while 72% had at least one concern relating to staffing or volunteering. Figure 15 provides an overview of delivery challenges faced by third sector organisations in Scotland, and how these have changed between March-April and July-August.

Source: Scottish Third Sector Tracker – Wave 4 (Summer 2022)

A recent Volunteer Scotland report sets out potential effects of the cost of living crisis on volunteering and volunteers.^[154] Emerging findings include the likelihood of increased demand for third sector services in areas of higher deprivation in particular, leading to increased need for volunteers. Challenges in the supply of volunteers to take on these roles are likely to be exacerbated as a result of the cost crisis, both due to people having to increase paid work hours, reducing the time that they have available for volunteering, and increases in the costs of volunteering (e.g. travel). Conversely, the report also suggests that volunteering may become attractive where it takes place in warm spaces away from volunteers' homes. The report also highlights potential concerns about the health and wellbeing of volunteers due to the cumulative impacts of the cost crisis and Covid-19.

Local Authorities

As noted above, local authorities are facing significant budgetary issues as a result of rising costs. In England, this is resulting in councils being forced to revise financial plans and consider cuts to local services such as bin collections, road maintenance and care for elderly and disabled people.^[155] Anecdotal reports suggest similar decisions are becoming necessary in Scotland, with local authorities deprioritising work seen as less urgent in order to focus on work such as Crisis Grants.

Local authorities are reporting impacts on school transport, with feedback suggesting that increased costs are making it harder for bus operators to fulfil these contracts. Rising fuel costs and driver shortages have led to disruption in school transport services, most notably in Lanarkshire where bus operators withdrew from new contracts resulting in several routes not running for 2 days during August. Although the situation has since improved following redeployment of local authority drivers to school transport services, challenges persist in securing new school transport contracts.

School meal provision is another area facing the effects of cost rises. In a June 2022 survey, around 55% of local authorities reported that they had changed their school meals menu due to food shortages. Almost 26% had reduced the choices on their menu, with around 6.5% being unable to provide a service at some point. Large increases in the cost of food and kitchen materials were reported, with almost 90% of local authorities reporting increases of 20% or more in the price of fresh meat.^[147]

Conclusion

Emerging evidence suggests that the cost of living crisis is already resulting in increased demand for some public and third sector services and it will be worth reflecting on the ongoing relevance of the work of the Christie Commission when seeking to address the increasingly complex challenges being faced as a result of current circumstances. This comes at a time when the costs of operating these services is increasing and some are being reduced. Looking ahead the context is likely to become increasingly challenging, particularly as households start to struggle with the deepening impacts of cost rises during winter. Where possible, this chapter has included evidence from Scotland in addition to insights from the UK that may have broader relevance. As noted however, this is not an exhaustive list of impacts on public services and the third sector, and there is likely to be a range of effects on services and the groups they serve which have not been covered. For example, qualitative feedback from the Third Sector Tracker suggests that increased spending on essentials is resulting in reductions in discretionary spending, with people unable to participate in their usual paid-for services such as leisure or physical activities, or children and young people's activities outside of school. As the cost of living crisis unfolds it will be important to examine all areas that are being affected, while considering the longer term impacts on the Scottish public and third sectors and how changing demands for services can best be met with limited resources.