Understanding the Cost of Living Crisis in Scotland

5. Policy responses to the cost of living crisis

5.1 International policy responses

Internationally, governments put a range of different measures and interventions in place to support businesses and households. This section of the report sets out some of these, including energy, food and housing interventions.

5.1.1 Energy interventions

Since the start of the energy crisis in 2021, the majority of European countries have introduced some form of energy regulation, with the exception of Ireland.^[83] Table 1 below sets out the range of interventions introduced by governments (at a national level) to help households with energy bills. For example, measures such as direct cash transfers to people to support them with energy bills and the broader costs of living. Most of the measures to provide support had been phased out by winter 2023/24.^[84] The UK is included in this table as a point of comparison. See the later section (UK Government policy responses) for further detail.

Source: National fiscal policy responses to the energy crisis^[85]

5.1.2 Food interventions

As the crisis progressed, some governments brought forward measures in response to rapidly rising food prices. Interventions included reducing VAT on staple foods (Spain), negotiating agreements with food manufacturers to reduce prices (France) and distributing debit cards to low income households with credit on them for groceries (Italy).

5.1.3 Housing interventions

Many countries implemented interventions in response to rising rents and mortgage costs. For example, in France rent increases were limited to 3.5% per year for existing tenants, in Luxembourg a temporary rent freeze was introduced and in Poland changes were introduced to allow borrowers to suspend mortgage payments for up to eight months.

5.1.4 UK Government policy responses

The UK Government introduced a series of policies designed to support households with the cost of living. Table 2 summarises the key interventions introduced. The table does not include changes to tax and national insurance or the windfall tax on the profits of energy companies. It also does not include some of the broader support provided to businesses such as the Energy Bill Relief Scheme.

Source: Adapted from House of Commons Library Briefings^[86]

5.2 Scottish Government policy responses

The Scottish Government recognised the serious implications of the cost of living crisis. On 11 August 2022 the First Minister convened the Scottish Government Resilience Committee to discuss urgent steps to mitigate the cost of living crisis.

Key actions taken forward by the Scottish Government in response to the cost of living crisis were primarily set out in the 2022/23 Programme for Government and the Emergency Budget Review, and included both funding and legislation. These are summarised below.

5.2.1 2022-23 Programme for Government

The 2022-23 Programme for Government^[87] (PfG) set out a range of additional spend to address the cost of living crisis.

Specific policies announced in the PfG included raising the Scottish Child Payment to £25 per week for eligible children, uprating Social Security Scotland benefits by 6%, doubling the Fuel Insecurity Fund to £20m to help households at risk of self-disconnection or self-rationing of energy, freezing rail fares until March 2023 and widening the Warmer Homes Fuel Poverty Programme.

5.2.2 Cost of Living (Tenant Protection) (Scotland) Act 2022

The Programme for Government also included a commitment to bring in emergency legislation to give tenants increased protection from rent increases and evictions during the cost of living crisis. The Cost of Living (Tenant Protection) (Scotland) Act 2022, passed by the Scottish Parliament in early October 2022, imposed a temporary in-tenancy rent cap and moratorium on the enforcement of evictions (except in a number of specified circumstances), and increased the level of damages for unlawful evictions. Following the expiry of measures on 31 March 2024, the rent adjudication process in the private rented sector has been modified for a period of one year to protect tenants from steep rent increases which may result from a sudden return to open market rent levels.

5.2.3 Emergency Budget Review

On 2 November 2022 the Scottish Government published an Emergency Budget Review^[88] (EBR). The EBR identified funding of around £35 million for a range of initiatives to support people with the increased cost of living including doubling the Scottish Child Bridging Payment to £260 and a new £1.4 million Island Cost Crisis Emergency Fund to help island households manage higher energy costs. The EBR also set out additional savings of £615m to enable enhanced public sector pay offers.

5.3 Responses to government interventions

The speed at which the cost of living crisis developed meant that Governments were under considerable pressure to introduce significant financial interventions at pace to ease financial stresses on households quickly. These interventions were typically funded through increased government borrowing.

On the whole interventions introduced by the UK Government were broadly progressive (with the possible exception of the Energy Price Guarantee) and welcomed. However, they were also criticised by organisations such as the Resolution Foundation^[89], IPPR^[90] and the Institute for Fiscal Studies (IFS)^[91] for failing to take into account individual household circumstances and being insufficiently targeted (e.g. providing support to better off households and not differentiating between households with larger costs).

The House of Commons Work and Pensions Committee, in its November 2023 report, raised concerns about the cliff edge nature of the Cost of Living payments, which creates a “fundamentally unfair” income gap where a person is financially penalised for earning just over the qualifying threshold^[92]. In 2022 it was estimated by the Scottish Government that there could be around 10,000 households in Scotland who earn just too much to qualify for Universal Credit^[93].

Interventions such as the Energy Price Guarantee were also criticised for failing to support longer term measures to reduce energy consumption or support more sustainable sources of energy. Citizens Advice data for England and Wales clearly shows the positive impact of the Cost of Living payments on their clients, particularly with regards to the numbers referred to food banks. However, the impact of these payments was always short-lived, with a temporary drop in numbers followed by a rise the following month.^[94]