The "cost of living crisis" refers to the ongoing economic pressures facing households who are seeing the cost of everyday essentials, like food and energy, increase at a faster pace than household incomes. This has the greatest impact on low income households who spend a greater proportion of their income on household essentials and who have the fewest financial resources at their disposal to assist with increased costs.
This report summarises academic and grey literature on the cost of living crisis to better understand the challenges low income households are facing and how they may be best supported.
Evidence was gathered from a wide range of sources – with a particular interest in what works to support low income households during recent crises (i.e. 2008 financial crisis, the COVID-19 pandemic). The search included coping strategies alongside experiences of support, with a particular focus on the impact of crises on families living in poverty.
What is helping to support families during the cost of living crisis?
Fast, easy and direct support to families has been the most valuable during the recent cost of living crisis. Both stakeholders and families acknowledge that the wide policy package of support has been indispensable, both in terms of supporting low income families through the cost of living crisis and in reducing (or minimising increases to) child poverty rates.
Additionally, evidence from stakeholders and families shows that direct financial support is highly impactful and particularly welcomed by families. Positive impacts were seen from the Discretionary Housing Payments and the crisis support provided through the Scottish Welfare Fund. While there has not been sufficient time to assess the impact of increases to the Scottish Child Payment on poverty rates, it is anticipated that it will make a significant difference to reducing poverty in Scotland. Additionally, the rent freeze, and subsequent rent cap, have been welcomed by tenants' organisations during this period of economic uncertainty.
What barriers prevent families from receiving support in the crisis?
There are significant barriers which prevent families from being fully supported during the cost of living crisis. These include:
- The cumulative and compounding impact of the past 15 years. From the 2008 financial crisis, to a decade of austerity measures, to the COVID-19 pandemic, families on low incomes have been living under a constant financial strain. This means they entered the cost of living crisis in a highly vulnerable position, with very limited or no options left to further reduce their household costs.
- Stigma. The evidence base highlights stigma as being a key barrier for families to access support. This can be due to feelings of inadequacy, guilt, shame, and perceived judgement.
- Means-tested targeting. While the evidence suggests targeting can help those most in need, sometimes these measures do not go far enough or are targeted too narrowly. Support packages which rely on families being on means-tested benefits can exclude many low income households.
- Variation in need and demand. 'One size fits all' payments do not account for the nuances of household size and other dynamics. The evidence highlights that particular family groups are at risk due to payments which do not account for additional circumstances (e.g. lone parents, families with three or more children, mothers under 25 or families with a disabled person).
Most stakeholders agree on key actions Scottish Government and partners could take:
- Continue to pioneer a cultural change. To increase resilience in the face of rising prices, there is a need to remove stigma surrounding social security payments. This involves providing accessible and supportive gateways to support.
- Encouraging take-up of gateway benefits. There are some benefits that allow receipt of other benefits. Universal Credit, for example, provides a gateway to many other means-tested benefits, including cost of living payments, but also other entitlements, such as free school meals. Increasing take-up of these gateway benefits is key to reducing the burden of household costs.
- Consideration of benefit design for eligible families. While targeted measures are welcomed, these need to respond to the needs of families. There is variability in need amongst households, for example when considering the health of family members, the size of the household or the ethnic background. The eligibility criteria needs to carefully consider how to best meet the needs of the target population.
Where do families need more support?
Some areas where Scottish Government could provide further support are:
- Accessibility of information. The cost of living website has been a welcome source of information. However, stakeholders point out that further consideration is needed to support those at risk of digital exclusion or with limited digital skills. This includes those in rural areas where digital connectivity may be slow and unreliable and accessing alternative face-to-face support prohibitive (due to cost and/or distance).
- Planning ahead. While inflation is reducing, prices are not going down and remain historically high, particularly for food. Stakeholders call for targeted measures to support low income households for the remainder of 2023 so that families are able to anticipate and plan ahead.
- Tailor labour market policies to support specific family circumstances. Many priority families face structural challenges. This means that their opportunities to increase income through paid work, even when the economy is better, can be limited. This, in turn, places a financial strain on the household. For example, for minority ethnic families this would mean navigating the impacts of structural racism in the labour market.
What impact does the cost of living crisis have on wellbeing, social/familial stability and financial stability for a family in a low income household?
The cost of living crisis is significantly impacting upon the mental health of both parents and children.
Additionally, the cost of living crisis has resulted in a lack of social connection, and increased isolation, for many households. This is on the back of a period of intensive isolation arising from periods when stay at home regulations were in place during the COVID-19 pandemic. The negative impacts of a lack of social interaction on loneliness and mental wellbeing are well documented . Priority groups particularly at risk of financial stress, leading to lower levels of mental wellbeing, include those living in larger families, minority ethnic families, and mothers with a young child.
What lessons can we learn which help us to tackle child poverty in the long term?
While the cost of living crisis is anticipated to be a short-lived event, it emphasizes a need for structural change. For child poverty, this crisis reminds policy makers and wider stakeholders that a long-term approach is necessary.
While support is required in the short-term to meet financial demands of the crisis, longer-term changes are necessary to ensure families do not continue to fall into, or deeper into, poverty. This includes work around:
- affordable and flexible early years and school age childcare
- digital accessibility
- secure, flexible and family friendly employment
- a minimum income guarantee
- an accessible and supportive social security system
- appropriate mental health support for adults and children
- joined-up and person-centred services.
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