Question and Answer Session: Cost of Living

Klara Skrivankova (Programme Director, Trust for London):  Even before the crisis hit, Londoners were already suffering from poverty the most in the country: 27% of London’s households.  Of course, Londoners are feeling the impact of the pandemic and that is now compounded by the economic crisis caused by global issues and Brexit.  The rise in foodbanks and the fact that we are now opening up warm places in the city are clear indications of how serious the issue is.

There is another grim baseline, and that is 50% of Londoners in poverty are working.  In some London boroughs, this number is even higher.  We also know that those who are suffering more than others are minority communities, disabled Londoners, and single parent households - they should be a priority in terms of focusing on the immediate issues.

In terms of solutions, most of them are long-term.  In terms of policy, that needs to focus on the underlying issues rather than dealing with the symptoms, but we also have tools that are available now, such as the [London] Living Wage.  No Londoner should be paid less than they need to live on and the [London] Living Wage is the only rate of pay that is calculated on the cost of living and it is more important now than ever.

Torsten Bell (Chief Executive Officer, Resolution Foundation):  Thank you very much, Chair.  I thought I might just offer some reflections on how to break down the headline “There is a cost of living crisis going on” into the phases and the drivers that are causing that over time.  I would think about it mainly in terms of the story of the last year which is about rising prices - 10% inflation; the highest and fastest inflation rate we have seen in four decades That has primarily driven the early phase of this year into the summer by rises in energy prices, largely globally, which affect the UK more than most parts of Europe because we use so much gas in generating our electricity, and then food prices are a slightly more recent driver of that high inflation rate.  Those two things are parts of the inflation basket that are the larger parts of the consumption of poorer households than middle and richer households, which is why poorer households are facing a higher inflation rate than the rest of the population.

Right now, without going into all of the weeds, some of the things that are offsetting that high inflation rate, particularly the falls in fuel prices, as in driving fuel prices, recently, are less relevant in London.  In general, those [cars] are used by higher-income households, but also used by households not in large cities. One of the things that makes Londoners stand out is obviously higher use of public transport and less use of cars.  That means that the falls in fuel prices that have for some households made the last few months a little bit easier have not existed in the same degree in London.

Those high inflation rates are feeding into falling real wages.  That comes on the back of a decade of stagnant real wages for the UK as a whole.  That is despite quite fast nominal wage growth in London and across the UK right now - 5.5% on average; lower in the public sector, but 5.5% on average.  In any normal time, that would have been a good set of wage growth figures, but when inflation is running at twice that, they are very much not - therefore it is a fall in real wages.

That is where we are; then, you have two other components to think about, which is housing and the labour market.  On housing, we have a two-part story. Private rents, despite not rising quite as fast as lots of people have said over the past decade, including in London, have risen fast recently, post-pandemic.  But it is really important to differentiate between the stock of private renters and the flow.  The stock of private renters is not showing in the data, yet there are very large rise in rent levels it is the flow of people taking on new tenancies who are having a very, very bad year, because you have a very concentrated mismatch between supply and demand over the course of the last year.  You have all been talking about some of that, the double-digit growth in rent levels, but that is affecting the flow of new renters, or people are having to change their tenancies. That is not tenable; in the end, the flow measure will become the stock measure of rents over time.  That is the story of the last year on housing.

The story of the next year is mortgages, and we move from younger people to older people, and poorer households towards richer households, as we move over the course of that.  London is unusual in its mortgage story because it will be worst hit in terms of the size of the average effect from rising mortgage rates because of high house prices.  It will be least affected because you have fewer mortgages because it is impossible to get a mortgage if you are young or poor in London.  Therefore, what you have is a very large but very concentrated effect for mortgages in London, which is quite different to a lot of the rest of the country in general.

Lastly, it is worth pausing on the labour market; the story of London over the last 30 years is an odd one of going from being a basket case labour market-wise, to basically being average.  Everyone has forgotten now, but in London, all of the Labour newspapers in the 1990s were about what on earth are we going to do about London, its disastrous labour market, and high unemployment, which is much higher than average.  Deindustrialisation used to be a London story.  No one talks about that anymore.  London now looks pretty average - 4% unemployment rate, a bit above the UK average but basically average.  The biggest falls in unemployment in the last year are in London because London was hardest hit for lower earners during the pandemic in some ways.  That is the good news.

Obviously, the bad news is the Bank of England is telling you - and it is going to tell you again in an hour and 45 minutes - that interest rates have got to go up because we need unemployment to go up to stop inflation rising.  Therefore, that is the next problem you need to be worrying about: prices over the course of the last year, mortgages coming in the very near future for people re-mortgaging, and then unemployment rising over the course of the next year.

Tom Rahilly (Assistant Director for Communities and Social Policy, Greater London Authority):  Thank you, Chair.  I am sure others on the panel will speak to the challenge that Londoners face and what we have seen in terms of the increasing costs and challenges to people’s incomes.  I wonder if it is helpful to just to talk a little bit about how we as GLA have organised ourselves to respond to that, following the very clear prioritisation the Mayor and Debbie [Weekes-Bernard] have given in terms of our programmes.  Debbie has spoken to the work we are doing.  As an organisation, we have sought to make sure that the resources are there to support that work.  That has built on an existing programme of work around financial hardship and support for Londoners on low incomes, but we have seen a significant increase in our dedicated resources too over the past year, which I can speak to, and how we have organised our team. My own unit has organised itself to be able to respond to the cost of living crisis and the ongoing nature of low income, and the challenges that creates in London, enabling us to address how we can best mitigate the short-term pressures - and Debbie spoke to some of the work that we are doing around advice, support on debt, around food security - but also how we are thinking about the long term and structural nature of some of these problems too, and what that means for Londoners now and into the medium term.

Within my own unit, Communities and Social Policy, we have a dedicated team looking at the kind of challenges of financial hardship in London, which is the focus of our cost of living work, which is work that we have reorganised over the past year to ensure that we are ready to respond as best as possible to this challenge, noting the great deal of pressures that Londoners are under.

During the current budgeting round, which is ongoing at the moment, we are also looking at what that means for resources into next year and future years to make sure that, as an organisation, we are ready to be able to mitigate and address those challenges as best as possible.

Dr Debbie Weekes-Bernard (Deputy Mayor for Communities and Social Justice): I will start by saying that, given that the cost of living crisis has exacerbated quite a sudden shock to Londoners, regardless of income bracket, many of the interventions that the Mayor has set out have been both universal and targeted in nature. There are very specific reasons for that, largely because we know that those on the very lowest incomes were already experiencing significant financial challenges even before the cost of living began to bite.  Back in 2019, around 440,000 individuals in London had experienced some form of destitution; therefore, we know that even prior to the pandemic, people in London were experiencing some real financial difficulties.

However, we also know that generally, across the city, a large proportion of individuals are experiencing financial difficulty.  Over half of Londoners have told us that they are financially struggling, which is up by 35% since the beginning of the year.  The initiatives that the Mayor has developed have been universal; we have set up a couple of advice initiatives, and we have set up a hub, which is for any individual who is experiencing difficulties in paying their bills or experiencing debt, to be able to access those services.

We have also recognised that some people are digitally excluded; online services may not work for everyone, and some people prefer face-to-face support.  For those on the very lowest incomes and those who are experiencing severe debt and hardship, they would prefer to speak to a person face-to-face; we have therefore invested in advice services specifically for those on low incomes across the city.

In summary, trying to rise to the challenge of meeting the needs of those who are experiencing difficulties, perhaps for the first time in their lives financially, as well as those who are experiencing difficulties that they were experiencing before.