4. Updated Economic Context
4.1 Information on the economic context and key statistical and research findings that were used to help inform the development of the Cost of Living (Tenant Protection) Bill is set out in the Financial Memorandum and the various impact assessments which were published along with the Bill, as well as separately published evidence papers. This section provides an update on the key evidence and data which has become available since these documents were produced.
4.2 A major challenge faced by households is the degree to which energy costs have risen, pushing more households into fuel poverty. Tables 1 and 3 show the change in the fuel poverty and extreme fuel poverty rate while tables 2 and 4 show the change in the total number of households in fuel and extreme fuel poverty between October 2022 and April 2023.
4.3 These tables show that the fuel poverty rate is expected to increase to 39% in April 2023 when the Energy Price Guarantee increases for a typical household from £2,500 to £3,000. This will result in an additional 120,000 fuel poor households compared to October 2022, bringing the total number of households in fuel poverty in Scotland to 980,000, of which 860,000 (34%) will be in extreme fuel poverty. Indeed this is an increase of around 260,000 households in extreme fuel poverty compared to October 2022.
4.4 While all tenure types will see an increase in both fuel and extreme fuel poverty this is uneven between tenures. For example the owner occupier sector will see a 4 percentage point increase in the fuel poverty rate and a 7 percentage point increase in the extreme fuel poverty rate. By comparison the social rented sector will see larger increases in both the fuel poverty rate (7 percentage points) and the extreme fuel poverty rate (19 percentage points). In fact come April 2023 half of all households in the social rented sector will be in extreme fuel poverty, the highest of any tenure. Conversely, the private rented sector will see the same percentage point change in the fuel poverty rate as owner occupiers at 4 percentage points, but a higher growth in extreme fuel poverty (10 percentage points).
4.5 In terms of total households, the private rented sector will see the smallest number of households move into fuel poverty (10,000), compared to 40,000 for the social rented sector and 60,000 for the owner occupier sector. Similarly, the private rented sector will also see the smallest number of households move into extreme fuel poverty (30,000) compared to 110,000 owner occupiers and 120,000 in the social sector. However, it should be noted that these figures are relative to the size of each tenure type, as the private rented sector is smaller than both the social rented and owner occupier tenures.
4.6 Despite the three tenure types experiencing changes in fuel poverty rates at different levels, there has been little change to the overall trend in fuel poverty with owner occupiers still having the lowest rates and social renters still having the highest. Indeed the gap between the fuel poverty rate for social renters and owner occupiers has increased from 30 to 33 percentage points. Conversely, the gap between private renters and owner occupiers has stayed similar at 24 percentage points. In terms of extreme fuel poverty owner occupiers still have the lowest rates; however, where private renters previously had the highest levels of extreme fuel poverty it is now the social rented sector that has the highest rates. Nevertheless, unlike fuel poverty the gap in extreme fuel poverty rates between owner occupiers and both private renters and social renters has increased from 17 to 19 and 13 to 25 percentage points respectively.
|Fuel poverty rate October 2022||Fuel poverty rate April 2023||Percentage point change|
|Owner Occupied subtotal||24%||28%||4%|
|Social rented subtotal||54%||61%||7%|
*Note differences may not sum due to rounding
|Households in fuel poverty October 2022||Households in fuel poverty April 2023||Change|
|Owner Occupied subtotal||370,000||430,000||60,000|
|Social rented subtotal||340,000||390,000||40,000|
*Note differences may not sum due to rounding
|Extreme fuel Poverty rate October 2022||Extreme fuel Poverty rate April 2023||Percentage point change|
|Owner Occupied subtotal||19%||26%||7%|
|Social rented subtotal||31%||50%||19%|
*Note differences may not sum due to rounding
|Households in extreme fuel poverty October 2022||Households in extreme fuel poverty April 2023||Change|
|Owner Occupied subtotal||290,000||400,000||110,000|
|Social rented subtotal||200,000||320,000||120,000|
*Note differences may not sum due to rounding
4.7 The tables above on fuel poverty assume different mitigation packages to reflect the change in mitigations announced by the UK Government and Scottish Government. These are outlined in table 5 on the following page.
|Mitigation||Included in scenario for||Eligibility|
|October 2022||April 2023|
|Energy Bills Support Scheme||Yes (£400)||No||Universal and received by all households in 2022/23. Not being continued in 2023/24.|
|Alternative Fuel Payments||No (£200)||No||Received by all households using fuels other than gas or electricity to heat their homes in 2022/23. Not being continued in 2023/24 but officials from the Department for Business, Energy & Industrial Strategy have advised that they will be keeping this under review.|
|Cost of living payment for households on means tested benefits||Yes (£650)||Yes (£900)||Received by households on means tested benefits in 2022/23 and 2023/24. Note: the amount will increase to £900 in 2023/24 up from £650 in 2022/23.|
|Cost of living payment for pensioners||Yes (£300)||Yes (£300)||Received by pensioner households in 2022/23 and 2023/24. Note: the eligibility criteria are changing and this will become universal in 2023/24, i.e. it will be received by all pensioner households, whereas in 2022/23 it was only received by pensioner households in receipt of the Cold Weather Payment.|
|Cost of living payment for people on disability benefits||Yes (£150)||Yes (£150)||Received by people on disability benefits in 2022/23 and 2023/24.|
|The Scottish Government's Cost of Living Award||Yes (£150)||No||This £150 Council Tax rebate was received in 2022/23 by households in Council Tax bands A-D or in receipt of Council Tax Reduction benefit. There has been no announcement regarding a rebate for 2023/24|
4.8 Inflation as measured by the Consumer Price Index ("CPI") increased from an annual 9.9% in August to 10.1% in September, and then to 11.1% in October 2022. Although the rate eased slightly to 10.7% in November, this was still above the level in August, and not much below the level in October, which was the highest level since October 1981. While the main driver of high inflation is the price of energy (the housing, water, electricity, gas and other fuels component rose by 26.6% in November), inflationary pressures remain broadly based, with other necessities such as food and non-alcoholic beverages (16.4%), clothing and footwear (7.5%) and transport (7.2%) showing elevated levels of inflation. This is further illustrated by CPI inflation excluding energy increasing by an annual 7.4% in November 2022, higher than the 7.0% recorded in August.
4.9 The Bank of England expects inflation to remain high in the short to medium term, with their central projection that CPI inflation will remain in double digits in the first half of 2023, before easing somewhat to 8% in Q3 2023 and 6% in Q4 2023, although this would be well above the inflation target of 2%. More recent forecasts from the Office for Budget Responsibility and Scottish Fiscal Commission also expect inflation to remain close to double digits until the second half of 2023. While their forecast of 7% inflation in Q3 2023 and 4% inflation in Q4 2023 is somewhat lower than the Bank of England projection, they similarly expect inflation to remain significantly higher than the 2% target until the end of 2023.
4.10 Increases in pay and earnings remain below inflation. The most recent data on average weekly earnings (August-October 2022) shows that across Great Britain, while total pay and regular pay rose in nominal terms, both at an annual rate of 6.1%, they fell in real terms by 2.7% (based on the ONS headline measure which uses CPIH as the deflator; using CPI, the fall was 3.9%). The fall in real regular pay, while slightly smaller than the record fall in April to June 2022 (3.0%), remains among the largest falls since comparable records began in 2001. While the annual growth rate in median pay in Scotland taken from HMRC PAYE records has shown an increase, from 4.8% in August, to 5.8% in September, 6.3% in October and 8.5% in November 2022, this has also been lower than the CPI rate for the corresponding months.
4.11 In their most recent set of forecasts (December 2022), the Scottish Fiscal Commission expects that Scottish households will see the biggest fall in their real disposable income since records began in 1998, with real disposable income per person falling by 3.3% in 2022-23 and by 2.3% in 2023-24.
4.12 The UK Government uses a lagged measure of the CPI inflation rate to uprate benefits so that benefit payment systems can be updated in time for new payment amounts to be paid each April. Accordingly, allowances on reserved benefits for 2022-23 were uprated in April 2022 by the 12 month to September 2021 CPI inflation rate of 3.1%. With the Office for Budget Responsibility (OBR) forecasting inflation in the UK will average around 10% in 2022-23, this increase in reserved benefits has been significantly below inflation in the current fiscal year.
4.13 In their 2022 Autumn Statement, the UK Government confirmed reserved benefits will continue to be uprated by the previous September's CPI inflation rate. Disability and low-income benefits will therefore be uprated by 10.1% in 2023-24, in line with September 2022 CPI. While this increase will compensate benefit clients for the exceptionally high rate of inflation in 2022-23, they will again likely face elevated inflation in 2023-24, with the OBR forecasting inflation will average around 5.5%. Benefit clients will receive compensation for this in 2024-25.
4.14 The UK Government has also decided to freeze Local Housing Allowance (LHA) rates for the third year running at 2020 levels. For sitting tenants whose rents are close to or above the relevant LHA rate, this would mean that an increase in their rent would result in little or no increase in their benefit payment.
4.15 This inherent time lag between the inflation rate used to uprate benefits (preceding September) and inflation at the time of uprating (following April) can be a particular issue during times of high inflation when household budgets are under pressure and benefit clients need to wait some time before the true value of their benefits is restored. In April 2022 the Scottish Government therefore uprated several devolved benefits by 6% in contrast to the UK Government's 3.1% uprating of reserved benefits, i.e. by more than the lagged measure of inflation. More recently, the Scottish Government increased the Scottish Child Payment from £20 to £25 in November 2022 and eligibility was extended from eligible children aged under 6 to under 16. All other devolved benefits will be uprated by 10.1% in April 2023, in line with September 2022 CPI, as announced in the Scottish Government Budget published on 15 December 2022.
4.16 The latest Scottish Government annual Private Sector Rent Statistics 2010 to 2022 were published on 29 November 2022. The most recent figures cover the 12-month period to end-September 2022, and so largely pre-date the Programme for Government proposals for emergency cost of living rent freeze legislation announced on 6 September 2022. In addition the figures are based predominantly on advertised rents, and so do not represent rent changes for existing tenants to whom the rent freeze applies. However these figures do help to demonstrate trends in advertised rents as the legislation was being put in place, with average two bedroom rents increasing in 17 out of 18 areas of Scotland compared with the previous year. In 7 of these areas, increases were above the average 12 month UK CPI inflation rate of 7.6%, ranging from 7.7% in Greater Glasgow to 10.3% in South Lanarkshire. Meanwhile the average 2 bedroom rent in the Ayrshires decreased by 1.5%.
4.17 These regional trends combine to show an estimated 6.2% annual increase in average 2 bedroom monthly rents at a Scotland level in the year to end September 2022. Average rents increased at a Scotland level across all property size categories, with increases of 6.3%, 6.2%, 7.4%, 7.5% and 6.9% for 1 to 4 bedroom and 1 bedroom shared properties respectively.
4.18 The statistics also provide information on the increases in average rents seen since 2010. At a national level average two bedroom rents have increased by a cumulative 32.9%, similar to CPI inflation of 33.7%. However there are substantial differences beneath this at a regional level, with Greater Glasgow and Lothian having seen cumulative increases in average rents above the rate of inflation between 2010 and 2022 across all property sizes, and average two bedroom rents in these areas rising by 52.3% and 51.5% respectively. Other areas such as the Ayrshires, Dumfries and Galloway, North Lanarkshire and West Dunbartonshire have seen increases in average rents of less than the rate of inflation across all property sizes.
4.19 Since the rent data which is available largely relates to advertised rents, the ONS Private Rental Index experimental statistics attempt to represent trends across all tenants by incorporating an assumption relating to average tenancy length to account for rents to sitting tenants. The increase of 4.4% in November 2022 was the highest since the series started in 2012. The ONS series only reports on national level increases, and the Scottish Government data presented above and the letting agent data presented below show there is significant geographical variation.
4.20 Data from letting agents, which relates to new let rents only and is thus higher than the ONS Private Rental Index, also illustrates that rental growth has been high, with Rightmove reporting an annual increase of 13.0% and Citylets an increase of 8.3% in Q3 2022 in Scotland. At a more disaggregated level, Citylets reported annual increases of 14.7% for Edinburgh, 12.6% for Glasgow, and 8.0% for Aberdeen, while Rightmove reported an increase of 18.0% for Edinburgh. Note that the time period of this data overlaps with the Scottish Government rent statistics discussed above, since the latter include data for Q3 2022 as part of the latest results for the year to end-September. Slightly more recent data from Zoopla for October 2022, reports an increase in new let rents of 11.4% for Scotland, 14.1% for Glasgow, 12.4% for Edinburgh and 9.7% for Aberdeen. Letting agencies only cover around half of the private rented sector, and each letting agent's data will be affected by its market coverage, which will vary by geography and market segment; in contrast, Scottish Government data is designed to be representative of the whole market.
4.21 Citylets further report that the stock of listings and the time to let remain at low levels. It is important to bear in mind that indicators such as time to let and different measures of listings are affected by a range of factors, such as the demand-supply balance, and are not a direct measure of the underlying private rented stock. Average time to let, at 19 days in Q3 2022, remains significantly below the two-year period prior to the Covid-19 pandemic, when it fluctuated between 29 and 37 days, before increasing to 40 days in Q2 2020 due to the impact of pandemic-related restrictions. However, the sharp reduction in time to let which followed this had already occurred by Q4 2021 (when the average time to let stood at 17 days), and it has remained at similar levels since then, as has the stock of listings. Rightmove recorded a 2.0% increase in the flow of new listings coming to market in Scotland in Q3 2022, which suggests that the decline in time to let and the stock of listings is due more to demand than supply factors.
4.22 Rents on relets are not subject to controls under the legislation. Data from the 2019 Scottish Household Survey on length of time at which the respondent has been at their current address suggests that about 35% of privately rented properties would experience a turnover within a 12 month period (this figure could be affected if there has been a change in behaviour, e.g. if tenants are staying longer due to their rents being controlled).
4.23 Mortgage interest rates, which had been on an upward trend since the end of 2021, experienced a further sharp increase after the UK Government Growth Plan / Mini-budget on 23 September 2022, with Moneyfacts data showing that the average advertised two-year fixed rate rose from 4.74% on 23 September to 6.65% on 20 October, before reversing some of this increase to stand at 6.13% on 22 November.Similarly, the average advertised five-year fixed rate rose from 4.75% on 23 September to 6.51% on 20 October, before falling to 5.95% on 22 November.
4.24 Although precise data does not exist, it is estimated that around 36% of Scottish private rented properties have an outstanding buy-to-let mortgage. Across the UK, around 28% of outstanding buy-to-let mortgages are on variable rates and so will be immediately affected by increases in interest rates. Of the 72% on fixed rates, it is estimated that around third will reach their end of term over a 12-month period, meaning that about half of outstanding buy-to-let mortgages will experience a rate increase over a 12-month period. This suggests that a little under a fifth of all privately rented properties in Scotland have an outstanding buy-let-mortgage which would experience a rate increase over a 12-month period. Taking into account turnover in the sector, over a 12-month period it is estimated that somewhat over a tenth of private rented sector properties in Scotland would constitute properties with an outstanding buy-to-let mortgage where the interest rate has increased and where the tenant has not changed.
4.25 Assuming that, when remortgaging, fixed interest rates increase from around 2% (where they were prior to December 2021, when the Bank of England began to tighten monetary policy) to the current levels of around 6% (or that the rate on a variable rate mortgage will increase cumulatively by this amount over a 12-month period), and using the average outstanding balance on a UK buy-to-let mortgage (adjusted to reflect lower average prices in Scotland) and the share of interest-only mortgages in the UK buy-to-let sector, the average increase in mortgage payments is estimated to be in the region of £300 per month for those mortgages which experience an increase. Again, this figure should be regarded as indicative due to limitations on publicly available data relating to the characteristics of buy-to-let mortgages in Scotland.
4.26 Results from the ONS Opinions and Lifestyle Survey across the period 22 June to 11 September 2022 show that 88% of respondents in Scotland had reported their cost of living to have increased over the latest month, with 15% reporting that their cost of living had increased due to increases in rent or mortgage payments. In addition, 33% of respondents currently paying rent or mortgage payments over this period in Scotland had reported that their rent or mortgage payments had gone up in the last month.
4.27 Tracking the changes to size of the private rented sector with certainty over the most recent period is challenging given limitations in available sources of data. Official statistics on the size of the sector are based on annual Scottish Household Survey estimates, which have shown an increase in the size of the sector from 120,000 in 1999 to 340,000 in 2019. However, the timeliness and comparability of more recent figures have been impacted by the effects of the Covid pandemic on the operation of the survey.
4.28 Separate monthly monitoring figures on the number of registered properties are available from the Scottish Landlord Registration System. These show that the number of properties appears to have remained relatively stable since the start of 2022. There was a slight drop of around 1% from 339,525 properties in January to 336,705 properties in May 2022, an increase of 1% to September 2022 back up to 340,033 properties, and then a slight drop of 0.3% to 338,933 properties in November 2022. However there are likely to be various data quality issues that may impact on the figures obtained from this data source, including on how frequently information from landlords is updated on the system.
Source: Scottish Landlord Registration System monthly monitoring figures.
4.29 Latest figures on eviction applications registered at courts show that there were a total of 430 social sector summary cause eviction applications registered in the courts in November 2022, which compares to 458 eviction applications registered in August 2022, 421 in September 2022 and 388 in October 2022, and which is above the monthly levels seen prior to this each month between April 2020 and July 2022. Note that these are overall figures and do not specifically identify the number of applications that fall within the scope of the emergency legislation.
4.30 There were a total of 126 private sector eviction applications received by the First Tier Tribunal in November 2022, which is a decrease on the 312 applications in August 2022, the 227 applications in September 2022 and 212 applications in October 2022. However, this is higher than the monthly levels seen between April 2020 and April 2022. Again, these are overall figures and do not specifically identify the number of cases that fall within the scope of the emergency legislation.
4.31 According to recent YouGov polling for the Scottish Government, during the period from late September to early November 2022, concern about paying rent has decreased slightly for social renters (from 19% to 12%) but concern among private renters has mainly held steady (at 22% and 21% respectively) although figures are subject to a margin of error. However, levels of concern about paying mortgage/rent remain higher in the rented sector than all tenures as a whole (16% for renters compared to 10% all tenures in November 2022).
4.32 This same polling found that, in early November, renters were more likely than respondents from all tenures as a whole to say that they were managing less well financially (32% of renters compared to 21% all tenures as a whole), and more likely to say that they were struggling to pay for household bills, including energy bills, rent and mortgage payments at least a little (68% of renters compared to 53% all tenures as a whole, with 38% of renters compared to 24% all tenure as a whole saying somewhat or a lot). For social renters, the numbers of respondents who reported managing less well financially declined from 49% to 38% and the proportion struggling somewhat or a lot to pay household bills slightly decreased from 47% to 41% from August to November, while for private renters both measures remained stable at 29% and 25% respectively for the former and at 35% for the latter, although figures are subject to a margin of error.
4.33 A November 2022 online poll by YouGov for Citizens Advice Scotland (CAS) of 1002 Scottish adults also found that 38% of respondents felt worried or worried/anxious about being able to pay their energy bills, as well as feeling worried/anxious about being able to heat their home. A further 62% of the sample expressed feeling worried/anxious about the cost of everything at the moment, not only energy bills.
4.34 Although not based on a representative sample of Scotland's population, evidence from the Scottish Government's People's Panel for Wellbeing (a panel of around 30 diverse members of the public) held in late September 2022, found that the cost of living crisis had resulted in panel members having to make hard choices about whether to heat or eat; struggling to afford basic necessities; making lifestyle adjustments; and being forced into life-changing situations such as cutting short maternity leave or giving up university. They also reported existing physical health conditions worsening and mental ill health developing because of the crisis; and panel members expressed a concern that the crisis would only worsen.
4.35 Figures provided by Opinium based on a survey carried out in October 2022 of 1000 UK 18 to 35 year olds (including those living in Scotland), found that 27% (n=206) of surveyed young people who currently live in the PRS reported planning to move home with their parents in the next 12 months, and 12% (n=96) have already done so due to the cost of living crisis. Young people in this study also reported taking or planning to take other actions in response to the cost of living crisis that included moving in with friends, moving to live with more people to help manage bills, or moving to a cheaper rental property. Similarly, experimental ONS survey data from English university students in October/November 2022 found nearly one in five (18%) students said they had considered moving back to their family home and commuting to their university from there, with 6% of all students planning to do so.
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