Estimating the increased cost of living between 2021/22 and 2022/23
Our analysis gives the following results:
|Increase over period April 2022 to March 2023 compared to previous year, as expected in May
|Additional increase expected
In terms of the additional cost of living support package for non-disabled working-age families on means-tested benefits, this amounts to £1,200 through a series of lump sum payments (£400 energy rebate, £150 Council Tax rebate and £650 lump sum benefit payment).
There has also been the usual uprating of benefits by the inflation in the previous September, which was a lot lower than the actual inflation in April 2022 (3.1% inflation in September which rose to 9.0% in April), as well as an increase in the National Living Wage.
Our analysis is split into two parts.
Part 1: Impact of energy price rises
This mirrors the methodology JRF have used several times since January to look at the impact of price rises and involves the following steps:
- We start with the recorded expenditure on gas and electricity by households in the first and middle equivalised income quintiles of the Living Costs and Food Survey for 2019/20. These quintiles are based on net incomes before housing costs as quintiles based on incomes after housing costs are not readily available from this survey.
- We apply the standing charge and price per unit from the gas and electric energy price cap to this expenditure to derive a consumption level that would result in this level of expenditure for the first and middle quintile each family type, assuming no change in consumption. (NB: We take the weighted average of the two price caps that operated in the financial year 2019/20.) We assume households in the bottom quintile pay for energy using a Pre-Payment Meter while the middle-income household pays using Direct Debit.
- We then apply each consumption level to the standing charge and unit price of the relevant energy price cap to generate bills for this period, with the same approach for earlier periods, combining periods into a financial year using weights derived from BEIS's Energy Follow-Up Study.
- For the Energy Price Cap periods of October 2022-December 2022 and January 2023-March 2023, we assume the direct debit dual fuel tariff for standard consumption is as projected for gas and electricity prices by Cornwall Insight (see Press release | Price cap to remain significantly above £3,000 a year until at least 2024 (cornwall-insight.com)).
- Because changes in the wholesale price only affect the unit cost part of the cap, the standing charge is the same independent of consumption and that the wholesale contribution to the cap doesn’t vary by payment type, we can now construct what the new standing charge and unit cost for future periods would need to be to generate the cap projected by Cornwall Insights.
- We can then apply the same consumption patterns to the new Price Cap to get the relevant bill for each family type for the two quintiles.
Part 2: Wider cost of living impacts
Here we apply the new Bank of England forecasts for inflation rates excluding energy to ONS spend data using the following steps:
- Table 3.1E of ONS’s Family Spending at Family spending workbook 1 shows the total spending in the bottom quintile in 2019/20. We derive a total excluding energy for 2019/20. We use 2019/20 as a base, as spend in 2020/21 is affected by coronavirus lockdowns.
- We can then uprate this spend to 2021/22 and 2022/23 using the series the Bank of England publish which is historic and forecast inflation excluding energy.
We have also not deducted ‘normal’ price increases over a year. If we assumed these to be 2% as in the Bank of England target the £2,550 increase reduces to around £2,250.