Understanding the Cost of Living Crisis in Scotland

This report draws together analysis from a wide range of sources to provide a summary overview of evidence on the cost of living crisis and its impact on Scotland. It includes evidence from Scotland and the UK as well as from other European countries.


1. Executive Summary

The 2021 to 2023 cost of living crisis was the most serious inflationary shock to affect Scotland since the early 1980s. This report brings together analysis from a wide range of sources to provide a summary overview of evidence on the cost of living crisis and its impact on Scotland. It includes evidence from Scotland and the UK as well as from other European countries.

The report has been produced by a cross Scottish Government group of analysts. The group was set up in May 2022 to bring together evidence on the emerging crisis and use evidence to appraise policy options and support cross government decision making. This report expands on a more detailed and comprehensive report published by the group in November 2022[1] to present a more up to date assessment of the cost of living crisis and its emerging legacy in Scotland.

Key points:

  • The cost of living crisis has presented serious economic and social challenges for Scotland and the UK, and has had a detrimental effect on businesses, communities, households, public sector budgets and the delivery of key public services.
  • While the cost of living crisis affected everyone, some households, services and sectors of the economy were much more exposed to rising prices. Low income households were, and continue to be, particularly adversely affected. They were more financially vulnerable entering into the crisis, were subject to higher rates of inflation than better off households in the earlier, acute phase of the crisis, and often pay more for essential goods and services.
  • Women, disabled people, ethnic minorities, rural households, larger households, young people, students and carers, lone parents and single person households, households in receipt of income-related benefits, people narrowly ineligible for benefits, and people with no recourse to public funds were particularly adversely affected. Some households will have a number of these intersectional characteristics, potentially compounding disadvantage.
  • Businesses responded to the increased costs in a number of ways - by adjusting their prices, absorbing costs through reduced profits, and / or seeking to improve efficiency or reduce wider operational costs.
  • The cost of living crisis is likely to have increased the demand for public and third sector services at the same time as increasing the cost of delivering services.
  • Governments around the world (including in Scotland and the UK) introduced significant interventions to support businesses and households. While these interventions helped to alleviate the immediate effects of the crisis, think tanks and research organisations have suggested that these interventions could have been better targeted to support those households most in need of support.
  • There is also evidence to suggest that the benefits of government interventions was relatively short lived. Interventions such as the Energy Price Guarantee have also been criticised for doing little to improve Scotland’s longer term resilience through reducing energy consumption, supporting more sustainable sources of energy and improving households’ financial ability to withstand future economic shocks.
  • Over recent months the rate of inflation has fallen to a level which is closer to the Bank of England’s target rate of 2%. However, the large increases in inflation over the last three years have effectively been ‘locked in’ and lower inflation doesn’t mean prices are falling, just that they are rising less quickly.
  • The fall in the inflation rate coupled with stronger earnings growth has meant that we have seen a return to real earnings growth over the past year. However, polling shows that for many people (particularly low income households) it doesn’t feel like things are getting better.
  • The longer term effects of the cost of living crisis continue to present serious economic and social challenges for Scotland, and the crisis may negatively affect people’s health, wellbeing and future resilience for years to come.

Contact

Email: Tom.Lamplugh@gov.scot

Back to top