Unsung Britain
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Living standards
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Prices & consumption

Bare necessities

Unpacking the rising cost of essentials for low-to-middle income Britain

Simon Pittaway
Simon Pittaway
Lalitha Try
Lalitha Try

Essentials take up more of households’ total spending than they have in the past, with spending on essentials for low-income households increasing the most. A more essentials-heavy spending basket also left poorer families facing faster price growth in recent years.

Higher energy costs, coupled with rapid food inflation, have led to hardship for many. Energy arrears more than doubled in real terms between the end of 2019 and the end of 2024 (from £1.6 billion to £3.9 billion), while the share of working-age adults in very low food security rose from 3.9 per cent to 6.0 per cent between 2021-22 and 2023-24, with the rate for children climbing from 5.6 per cent to 9.4 per cent.

To help households who are struggling to afford essentials costs, the Government should introduce a social tariff to target support with energy bills towards people who need it the most. They should also target concessionary bus passes to low-income people on benefits, and ensure that low-income households have access to EV charging at a fair cost. Benefit uprating should be improved, so that incomes are more resistant to price shocks.

Key findings

  • There is a wide and growing gap between rich and poor when it comes to the share of their spending going on essentials. The poorest fifth of working-age households now spend 51 per cent of their after-housing budgets on food, energy, transport, clothing and childcare, up from 46 per cent in 2006; the richest fifth spend just 39 per cent (38 per cent in 2006).
  • A more essentials-heavy spending basket left poorer families facing faster price growth in recent years. Between December 2019 and December 2024, the poorest tenth of households experienced an average annual inflation rate that was 0.6 percentage points above that of the richest households, hitting real living standards by 3 per cent relative to inflation experienced by the richest tenth.
  • Largely reflecting higher gas prices, households’ energy costs rose steadily in the 2000s and 2010s, with both gas and electricity prices rising by 150 per cent in real terms between 2000 and 2019. This gradual rise then became an acute crisis: in 2023, UK households faced the highest electricity costs out of 25 advanced economies in the IEA.
  • Higher energy costs, coupled with rapid food inflation, have led to hardship for meany. Energy arrears more than doubled in real terms between the end of 2019 and the end of 2024 (from £1.6 billion to £3.9 billion), while the share of working-age adults in very low food security rose from 3.9 per cent to 6.0 % between 2021-22 and 2023-24, with the rate for children climbing from 5.6 per cent to 9.4 per cent.
  • Since the turn of the century, public and private transport costs have diverged. New and used cars have become cheaper in real terms, while frozen Fuel Duty has helped to ensure income growth has kept up with car running costs. But, between 2000-01 and 2023-24, bus fares grew 47 per cent in real terms while rail fares grew 34 per cent – far outpacing the 24 per cent real income growth for poorer households.

Recommendations

  • The Government should intervene to help households with historically high energy bills. The best way to do this is via a social tariff, which would offer a lower unit cost of energy to eligible households. The infrastructure for a social tariff should be built now, so that the Government can ramp up targeted support in a more cost effective way than happened under the Energy Price Guarantee in the event of a crisis.
  • Concessionary bus passes don’t currently target support well based on income: it would be a more efficient use of money to target concessionary bus passes towards people receiving means-tested benefits than giving them to all over 60s, which is the policy in much of the UK.
  • The net zero transition should reduce the cost of driving as electric vehicles are cheaper to drive than petrol ones, but to make sure low income households aren’t left behind with the move to net zero, the Government need to increase access to on street EV charging. A per mile road tax should be introduced for EVs, as Fuel Duty revenue will disappear with the move to EVs.
  • To make sure benefits keep up with prices, they should be uprated more than once a year when inflation is high. More timely inflation data should be used for uprating, and this is especially important when inflation is volatile.

Further reading

Bare necessities
Unpacking the rising cost of essentials for low-to-middle income Britain
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Simon Pittaway, Lalitha Try
The Living Standards Outlook 2025
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Adam Corlett
Flex appeal
How to reform electricity pricing for a cleaner and cheaper energy system
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Zachary Leather, Jonathan Marshall
Simon Pittaway
Simon Pittaway Senior Economist
Lalitha Try
Lalitha Try Economist