Cost of living: a report on how the UK is coping with rising bills

The rise in the cost of living throughout 2022 has presented households with the biggest financial challenge for decades and created worry and anxiety for millions of people.

The first wave of our research, carried out in February 2022, created a snapshot of how people felt about their finances ahead of the sharp rise in energy prices in April and how they were planning on coping. Since then, interest rates and inflation (especially food prices and fuel) have risen, which has put increased pressure on household budgets. This, our second Cost of Living research, explores the changes people have already made to help with the cost of living and how they are coping with the current pressures on their finances.

Cost of living worries

We were keen to find out how households are managing with their finances now compared to six months earlier, but we also wanted to establish whether people had taken on second jobs and how well placed they are to cope with an unexpected expense.

Our overall sample size was 4,000 UK adults, and of those, over 1,700 were in full-time employment. When we questioned this group about how long they worked, the results were both surprising and concerning. Almost one in three people (28%) are working more than 48 hours a week (the equivalent of more than nine hours a day over a five-day week) with a significant minority of those working the longest hours are in financial crisis, or close to it, being unable to pay their regular bills.

Regardless of rising costs, approximately a third (31%) are already spending money they don’t have, by going overdrawn (often or occasionally) or borrowing to meet everyday expenses. And almost a fifth (17%) of people said that they could only fund an unexpected expense of up to £100 from either their income or savings.

While most of our questions referred to overall increases in the cost of living, we did ask one question specifically linked to the then planned energy price cap rise to £3,549 from October 1st. We now know that the government’s energy price freeze will see this reduced to £2,500. Nevertheless, it shows some of the steps people were considering when faced with a higher rise in energy bills.

A 56-hour week for some

A typical working week, according to the Office for National Statistics, is 36.4 hours, but our survey found that almost one in five people working full time (19%) are working more than 56 hours a week (the equivalent of approximately 11 hours a day, five days a week), with a further one-in-ten (9%) working between 48 and 55 hours a week.

However, there was a significant difference across age bands, with younger people more likely to be working long hours. Over one in four 18–24-year-olds in full time work (29%) say they are working more than 56 hours a week; double the number of those aged 35-49 (15%) and 50-69 (14%). Men were also more likely to work over 56 hours a week than women (23% compared to 13% of women), but as women are more likely to have caring responsibilities than men, this may not be a surprise.

Even though a significant minority of people are already working long hours, it isn’t necessarily enough to pay the bills. Four in ten of those working 56 hours a week (42%) are in financial crisis or close to it. This compares to a fifth (20%) of adults in the UK who said they are in crisis or are finding it harder to meet basic living costs.

Almost one in 11 people who earn less than £20,000 a year (9%) work more than 56 hours a week. However, not all of those who work long hours are on a low income – with over half of those earning £80,000 a year or more also working at least 56 hours a week. Our research also showed that people who work for themselves are almost twice as likely to work more than 56 hours a week (31% compared to 18% of those who are employed). This may be due to financial necessity as research carried out by the Centre for Economic Performance at the London School of Economics shows that self-employed people have been badly affected by the cost of living crisis, with 40% of those who work for themselves earning less than £1,000 a month in income.

The worsening crisis

When we asked people how they felt about the cost of living in February, the energy price cap due to take effect from April had just been announced, and inflation and interest rates were already rising. Since then, interest rates have risen by 1.75% to 2.25% as of 26th September and inflation as measured by the Consumer Prices Index has increased from 6.2% in February to 9.9% in August. Not surprisingly, perhaps, more people describe themselves as ‘extremely worried’ about energy bills this time round (35%) than when we carried out the research in February (29%).

Overall, there was only a marginal increase in the percentage of people who described themselves as worried about the different rises in the cost of living. For example, 93% describe themselves as worried about energy bills (92% in February), with 89% worried about food bills in August, compared to 87% in February. However, with base figures for those worried already being extremely high, there was, perhaps, little room for a substantial increase.

Through the gender lens

The cost of living crisis is affecting everyone, but not to the same extent. And people who have been affected financially to the same extent may respond differently in terms of both how worried they feel and the actions they take to mitigate the worst of the crisis. Our research revealed some notable gender differences.

For example, more women than men say they are being affected emotionally by the crisis. While over one in four men (27%) describe themselves as more anxious than usual as a direct result of increases in the cost of living, this rises to over four in ten women (42%). Women are also more likely to report feeling more stressed than usual (40% v 28% of men); in a lower mood (33% v 24% of men) and more worried about how loved ones are coping (27% v 19% of men). And while 35% of people describe themselves as extremely worried about energy bills, for example, far fewer men than women (28% compared to 41%) were in this category.

Women are also more likely to have made changes to their spending to help with the cost of living crisis. When we asked UK adults what changes they’ve already made to their habits only 13% of women said they’d made no changes compared to almost one in five (18%) of men.

More women than men had reduced the number of meals out or takeaways they had (44% v 31%), bought cheaper food brands (43% v 28%), bought fewer new clothes (45% v 27%) and reduced or stopped paying into savings (25% v 16%). The only action where there was no gender difference was stopping or reducing pension contributions, where 5% of both men and women said they’d done this to help pay for the cost of living.

Who’s pausing their pension?

Most people who are making changes to cope with the cost of living are adjusting their everyday spending. And while just over one in five people (23%) have been dipping into their short-term savings to help meet increased costs or reducing the amount of money they pay into their savings account (21%), most have not stopped paying into their pension.

Only 5% of people (aged 18 – 69) told us they had stopped or reduced their pension contributions to help cover the increase in the cost of living.

Younger people (aged 18 – 24) were less likely to have stopped or reduced their pension contributions (with 4% saying had done this) than people who were in their late 20s and early 30s (where 6% had stopped or reduced their pension contributions). One in 20 (5%) of those aged 35-49 had stopped or reduced their pension contributions, while 4% of those aged 50 – 69 had done so.

Our latest wave of research also shows that one in 20 (5%) of people would consider stopping their pension contributions, while (4%) would consider reducing their pension contributions if the energy price cap were to rise to £3,549 from October. However, as the energy price freeze means that a typical household will pay £2,100 for their energy (£2,500 from the prize freeze and £400 by way of a discount), this could mean that fewer people decide to stop or reduce their pension contributions.

Even so, of those who are planning on reducing or stopping their pension contributions in the future in response to an energy price cap of £3,549 a year, one in eight (13%) said they were planning on reducing them by less than 5%. And overall, over six in ten people (61%) said they were planning on reducing their pension contributions by less than 50%.
For some people on a tight budget, pausing their pension contributions may be the right thing to do. However, estimates show that 12 million people, or 38% of the working population, are not saving enough for their retirement. Stopping or reducing pension contributions could increase the risk of facing a cost of living crisis in retirement.

That said, over half (53%) hadn’t checked to see what the effect of a reduction or pause in pension contributions could be on their income in retirement. Of the 37% who had checked, people aged 35-49 were the least likely to have done so of all the age groups.

The cost of living crisis and protection

If the energy price cap of £3,549 had been introduced in October, it would also have prompted one in ten people to either reduce (5%) or stop (5%) their protection insurance payments, for policies such as life insurance, income protection or critical illness cover. Although paying for these policies may seem like another expense, there is a significant cost to not having them in place if something happens, such as long-term or serious illness.

Looking ahead

Looking ahead, people’s finances will continue to come under severe pressure, especially if interest rates and inflation continue to rise. However, the government’s new energy price cap freeze, due to take effect from October and last for two years, will give people some reassurance about their energy bills not rising further this winter.

Government help with energy bills, announced in May, will also start to hit bank accounts from October. But this will still leave a typical household on the standard tariff, paying their energy bill by direct debit with an annual cost for gas and electricity of £2,100 – significantly above what people were used to at the beginning of this year. People on the lowest incomes will pay less (if they are ‘typical’ users) if they qualify for a higher level of the targeted help announced earlier this summer. However, this targeted help is currently proposed to be in place for this winter only.

With inflation predicted to remain high into 2023, it’s too early to say that the cost of living crisis is easing. Our research next year should give us a clearer idea of how people have coped with winter bills and how well they are placed to deal with the cost of living.