Research from the Resolution Foundation shows that the average British household is now roughly £2,900 worse off than it would have been if inflation had remained at typical levels over the past five years. The think‑tank calculates that the UK has endured the equivalent of 13 years of normal price growth in just half that time, a squeeze driven by the pandemic, the war in Ukraine and escalating tensions in the Middle East.
Scale of the Financial Hit
The study’s headline figure stems from a simple counterfactual: had inflation tracked its long‑run average, the typical family would have an extra £2,900 in disposable income today. Instead, real earnings have stagnated while essential costs – especially energy – have surged. The analysis notes that the period from 2021 to 2026 saw price rises far outpacing wage growth, leaving households with a cumulative shortfall that mirrors over a decade of ordinary inflation.
Who Feels the Strain Most
Hardship is unevenly distributed. Around 1.7 million families struggled to keep their homes adequately warm during the 2022/23 winter, a rise on the previous year. Moreover, the share of low‑income households falling behind on priority bills – rent, water, council tax and energy – has almost doubled since 2020, reaching 18 % by March 2026. James Smith, chief economist at the Resolution Foundation, warned that poorer families are cutting back hardest on heating and accruing arrears fastest, a trend likely to persist as Middle East conflict keeps energy prices elevated.
Policy Challenges Ahead
Chancellor John Healey is set to deliver his first Budget amid mounting pressure to alleviate the cost‑of‑living burden, following Andy Burnham’s pledge to give families “breathing space”. Yet the public finances are constrained; the Iran war and a global bond sell‑off have pushed borrowing costs higher, limiting fiscal room. Smith urged against a repeat of the expensive, universal support package of 2022, arguing that any new measures must be tightly targeted at those most in need, beginning with energy bills. Green MP Hannah Spencer echoed this, saying the Budget will fail unless it includes a proper plan to shift costs off energy bills, fund a national home‑insulation scheme, curb profiteering by energy firms and accelerate cheaper, cleaner power.
Why it Matters
The findings underscore that the cost‑of‑living crisis is not a temporary blip but a structural drag on household finances that will shape spending, saving and political choices for years to come. With millions already unable to heat their homes and a growing share of low‑income families falling behind on essential payments, the social strain risks deepening inequality and undermining consumer confidence. Policymakers face a stark trade‑off: provide meaningful relief without exacerbating public‑debt pressures, a balance that will determine both the immediate wellbeing of vulnerable households and the longer‑term health of the UK economy.
