Household finances and wellbeing September 2022

Summary

• Consumer confidence continues to fall despite recent government intervention to reduce energy price rises.
• There is evidence of increasing pressure on consumer finances. 8.9% of households missed a mortgage, rent, bill or credit payment in the last month and 65% of households made an adjustment to cover essential spending such as cutting back, dipping  into savings or borrowing more, an increase of 23 percentage points compared to a year ago. 
• Consumers are taking widespread action to offset price increases, making dramatic changes to their behaviour to reduce their spending on food, energy and leisure.
• The rising cost of living is taking its toll on consumers’ emotional state, with a quarter (26%) reporting that the situation has caused them to have trouble sleeping.

You can access our complete library of data to understand the challenges facing consumers from our consumer data hub.

Confidence drops despite government intervention

Consumer confidence fell again in September. Just 12% of consumers said they think their household situation will improve over the next year, whilst the majority (64%) thought it would worsen, giving a net confidence level of -52. This is worse than  the previous record low of -43 in March 2020 when the Covid-19 pandemic began. Confidence in the future of the economy was also very low, at -68.

The poll was conducted before the Chancellor announced the mini-Budget. however, this fall in confidence comes despite the new Prime Minister’s announcement of a price freeze on energy bills, which will mean considerably lower bills for the average household than previously anticipated. 

Although this price freeze will protect households to a great extent against future energy price rises, many are already struggling with current energy prices and are conscious that prices are set to rise in other sectors too. Many households will experience severe financial pressure despite the latest announcements.  The Queen’s death may have also negatively impacted consumer sentiment, but the majority of consumers cited financial and economic reasons for their lack of confidence.

Our own calculations estimate that despite the price freeze, a typical household will still be paying around 60% more than they were last year, even accounting for the £400 energy bill support.

"Although the price cap for energy looks likely to be fixed below the original increase, it will still increase to some extent and push us into fuel poverty.  Petrol prices are not going down and food prices are rocketing… It is quite frightening" - Female, 72, West Midlands

"Despite the measures introduced by the new Prime Minister, the cost of electricity will still be a great burden; plus that the cost of living seems to be rising all the time anyway" - Female, 72, North West

"Inflation is at a record high and expected to increase further still over the next year, and energy prices are more than double what they were this time last year, even with the new freeze on the price cap" - Male, 29, East Midlands

Pressure builds on household finances ahead of the price cap rise

Financial difficulty, already at an elevated level, crept up slightly this month. The proportion of households who missed a mortgage, rent, bill or credit payment in the past month was 8.9%. This is significantly higher than the missed payment rate at the same time last year, which was 6.2%.  

The missed payment rate varied dramatically among groups of consumers, with a quarter (24%) of Universal Credit recipients reporting having missed a payment. 

Renting households were more likely to have missed a housing payment (4%) than mortgage holders (1%), and 6% of all consumers had missed some kind of household bill payment (household bills include utilities, communications council tax or insurance bills). Council tax was the most commonly missed bill payment, closely followed by phone, energy and broadband bills. Of those who had missed a bill, just over half (53%) had missed more than one, demonstrating the severe financial difficulty experienced by some households. Some members of our Consumer Insight Panel, a group of 35 households with whom we do regular in-depth interviews, explained that they are having to make conscious choices as to which bills are the most important to pay. For example, one respondent reasoned that they could miss a water bill as water was unlikely to be cut off, but they needed to make their rent payment due to the risk of being evicted.

Though a small but increasing minority are experiencing severe enough difficulty to have missed payments, the majority of households have been making adjustments of some sort to cover the cost of living. Two-thirds (65%) of households reported having made at least one adjustment to cover essential spending in the last month in September. This is the highest ever recorded on the tracker and a major increase compared to this time last year (42%). Adjustments might include cutting back on essential spending, dipping into savings, borrowing from friends or family, using an overdraft, taking out credit or selling belongings. 

The poll finds that cutting back or using savings were much more common than taking out credit. This is also supported by our Consumer Insight Panel - households said that they are using savings or borrowing from friends and family to keep their heads above water rather than turning to credit cards and loans, which are perceived as more risky. 

The proportion cutting back on essentials has more than doubled compared to a year ago, and the proportion taking money from savings has also increased significantly. However, some households may not be in a position to cut back, and may not have savings to use. There has also been a significant increase in the proportion using an overdraft facility compared to last year, and the proportion who have sold or pawned possessions has doubled. Meanwhile, the proportion who report having taken out a loan or used credit has remained much the same. 

Price rises are affecting many areas of consumer life

Beyond these direct financial actions taken by households, the majority of people are also changing their behaviours to keep their costs lower amid this surge in the cost of living. 

More than half of consumers (58%) reported reducing their usage of lights and appliances around the home due to an increase in their energy costs, whilst 42% said they had reduced hot water consumption (e.g. by taking fewer or shorter showers), and 18% said they had fewer cooked meals. 12% said they had spent more time out of the home to reduce energy usage. 

In response to increased food prices, 60% of consumers had bought cheaper products than usual and 36% had planned meals more, for example by batch cooking. One in six consumers (16%) said they had gone so far as to skip meals whilst 3% had used a food bank.  

One consumer explained how the actions they will have to take in response to price rises could compromise her physical health:

"I suffer with my lungs and have to keep warm with prices rising I am worried that I will not  be able to have my heating on which will endanger my health" - Female, 64, London

The types of actions taken by consumers varied significantly among different groups. Universal Credit recipients were much more likely to have taken more drastic action to reduce costs, with 30% saying that they had skipped meals (double the proportion in the sample as a whole), a quarter (26%) saying they have had fewer cooked meals and 11% using a food bank (nearly four times the proportion in the sample as a whole). 

Those impacts on daily life are not limited to food and energy. Increased prices are also affecting what people can do with their leisure time. Nearly half (46%) of consumers said they had cut back on non-essential journeys to reduce spending due to price rises, whilst 58% are eating and drinking out less, 39% are spending less on hobbies and 29% have cancelled subscriptions such as streaming services or the gym. The widespread actions consumers are taking to reduce spending are having an overall impact on their standard of living and quality of life.

"It's like a financial lockdown. Parts of my life, of my dreams and aspirations for the future are being put on pause, possibly indefinitely. There are parts of my life up until now that I can no longer afford to have" - Male, 59, South East

"I’m not sleeping very well, not eating 3 meals a day, some days I don’t eat anything but toast and cereal , I don’t leave the house to socialise anymore as can't afford to, got no gas supply as I can't afford it so cut it off - I sit in silence some days, it’s very depressing" - Male, 51, North East

The cost of living crisis is taking an emotional toll on consumers

The impact of this crisis on consumer finances is clear, and we know that households are taking widespread and drastic action to reduce their spending. But the harm to consumers goes beyond the financial and practical, with the continued pressure impacting on people’s emotional and even physical health. 

Just over half (52%) of people reported feeling anxious when thinking about the rising cost of living, whilst 28% reported feeling overwhelmed and 38% powerless.  Conversations with our Consumer Insight Panel suggested that feelings of powerlessness in the situation came from a lack of ability to control the increase in their household energy bills. Though many were reducing energy usage, they were aware that their bills would increase regardless because price increases have been so steep.  Though they acknowledged that their cost saving actions would not come close to offsetting price increases, they are still taking these actions in an attempt to exercise whatever control they can over their increasing living costs. 

Beyond these negative feelings, a quarter of consumers (26%) said they had had trouble sleeping due to thoughts about the cost of living, and 18% had experienced physical symptoms of stress and anxiety (tense muscles, a racing heart or feeling shaky or sweaty).

Consumers who consider their financial situation as poor described the impact of this on their psychological state:

"I feel very stressed and anxious all the time and struggle to sleep which is making me ill" - Female, 35, South East

"I worry and have trouble sleeping , especially about the energy prices. I worry that I won't be able to afford to put the heating on" - Female, 59, Scotland

Fazit

Our latest consumer research demonstrates the scale of the cost of living crisis and the enormous impact that it is having and will continue to have in the coming months, even despite the large package of support announced by the new Prime Minister.

Most households are now feeling some sort of financial squeeze and for increasing numbers this is tipping into acute financial distress in the form of missed payments. Inevitably this is leading to mental distress and physical harm, either as a side effect of finance induced anxiety or because people are skipping meals or, as the weather turns colder, heating their homes less. 

The scale of the crisis will inevitably place increasing pressure on the public and charitable sectors this coming winter. It will also be critically important that the businesses consumers interact with, especially in essential markets such as energy, food and telecoms, act responsibly to support struggling households and ensure they are fairly treated.