Londoners’ mental health and wellbeing: the cost-of-living crisis

Overview

Financial resilience and feelings of control relating to finance have a profound impact on people’s wellbeing, and those with pre-existing mental health conditions have been shown to have greater concerns about benefits and finances. Employment and financial security have a bidirectional relationship with overall mental health, with stable, consistent employment and the ability to save money acting as protectors of mental health whilst debt, unemployment, and financial instability are known to act as some of the main barriers to emotional wellbeing.

Life events such as losing one’s job, falling into debt, or being placed in high stress, potentially traumatic working environments can all be classified as stress points in a life course. With any traumatic event, these can act as triggers in the development of a wide range of mental health problems. In addition, the perpetual stress of unemployment or precarious employment, poverty or consistent low-income, exacerbated by the pandemic and vast inflations to the cost of living, have the ability to wear down the emotional resilience of Londoners and therefore pose a significant risk to population mental health.

COVID-19: The financial impact of the pandemic

The financial impact of the pandemic is not to be understated. In March 2020 when the first national lockdown was announced, entire sectors of the economy closed for many months at a time sending the economy into a sharp recession. Hundreds of thousands of Londoners were placed on furlough as part of the Job Retention Scheme, and at its peak in July 2020, 905,800 Londoners were furloughed on a full-time basis, the highest proportion of its overall population of any region. As the Scheme came to an end, 9 of the 10 local authorities in the U.K with the highest take-up rates were some of London’s most deprived boroughs, highlighting how those worse off financially were hardest hit by the financial impacts of the pandemic.^[1]

Those more likely to be furloughed or lose their jobs in the pandemic were those in social groups and from communities more likely to face financial difficulties prior to this crisis. These included young people, those from the lowest income quintiles, families with children, and those from racialised and minoritised communities, all of which already faced disparities in terms of rates of unemployment, job security, financial resilience and economic inactivity when compared to the general population.

The pandemic has also led to an increase in the proportion of the population with characteristics of financial vulnerability, as households struggled to rely on reduced incomes and were increasingly forced to rely on savings or take out loans in order to support themselves. In the first year of the pandemic, the number of adults with characteristics of financial vulnerability increased by 15% to 27.7 million, with 3 in 8 adults nationally reporting that their financial situation had worsened due to COVID-19 and 15% (7.7 million) reporting that it had worsened a lot.^[2]

The government’s temporary provision of a £20 uplift to the Universal Credit Scheme was a lifeline for many households during the many difficult months of the pandemic, and when it ended in September 2021 it represented the largest drop since the scheme had begun, the impact of which is still yet to be fully realised. Between March 2020 and March 2021, the number of people relying on Universal Credit doubled from 3 to 6 million, indicating that many of those who had never been forced to rely on government support in the past were now being left with no choice but to do so.^[3]

^[1] Greater London Authority (2021) Briefing on the latest HMRC Official Statistics on the furlough support scheme: https://data.gov.uk/dataset/76bb4972-b0ec-4c19-bfdc-0859a24aabe4/gla-economics-covid-19-labour-market-analysis

^[2] Financial Conduct Authority (2021) Financial Lives 2020 Survey: the impact of coronavirus: https://www.fca.org.uk/publications/research/financial-lives-2020-survey-impact-coronavirus

^[3]

The current view: economic wellbeing

The main price rises that will have the greatest impact on the financial situation of households are as follows:^[1]

• The fuel price cap increased by 54% from April 2022 and has risen even further in October, bringing the average annual household energy bill to £2,500 even with the presence of substantial government intervention, over two times the amount households were paying a year earlier.
• Regulated rail fares rose by 3.8% in March 2022, increasing the cost of travel during a time of removal of coronavirus social restrictions and phased return to office working and commuting.
• TfL bus and rail fares increased by 4.8% on average from the beginning of March 2022.
• Many major broadband networks increased their prices by around 9% from the end of March.
• National Insurance contributions rose by 1.25% in April 2022.
• The Bank of England raised interest rates to a 33-year high of 3% in November 2022 in response to soaring inflation, increasing monthly costs to many of those with mortgages or other large loans. The guidance it has given suggests a peak in interest rates of around 4.5% in autumn 2023.^[2]

In the 12 months running up to September 2022, the cost of living has surged by a total of 10.1%,^[3]  and a range of increases in taxes, price caps, mortgages and monthly bills are set to only worsen this situation, with the Bank of England predicting that the UK’s GDP is now set to contract for two years, prompting an estimated rise in unemployment of 1 around million people and representing the longest recession on record[4]. In London, a surge in housing and rental prices has meant that inflation is estimated to be 1.5% higher than the rest of the country,^[5] with average asking rents 16.1% higher in Q3 2022 than the same time last year, the highest ever annual growth in rents of any region in the UK.^[6]

The increase in gas and electricity prices is by far the most substantial additional cost that households will have to pay in the coming months, with forecasting predicting that despite the Government’s more universal support provided via the Energy Rebate Plan, the number of households experiencing ‘fuel stress’ (whereby at least 10% of their monthly income is spent on gas and electricity) has already doubled overnight to around 5 million as a result of April’s price cap lift^[7], and will do so substantially further in spite of the recent government announcement that the fuel price will be capped at an average household energy bill of £2,500 until April 2023, after which it is widely anticipated that this support will be removed for the vast majority of households. Recent record profit figures posted by the owners of British Gas, the UK’s main energy provider demonstrate that the cost of energy is rising at a rate 23 times that of wages, making day-to-day costs increasingly unsustainable for many households.^[8]

However, whilst energy bills are the most significant of the rising living costs for most, it is important to recognise that the compounding rises in rent, transport costs, weekly shops and standard Wi-Fi and phone bills will equally have a considerable impact on almost all households to varying extents, and in particular on those in society who are most vulnerable to poor mental health outcomes and who are likely to be spending a larger proportion of their total incomes on rent, bills and essential items.

The number of people living in absolute poverty is currently projected to rise from 11 million in 2021-22 to 14 million in 2023-24 – a rise from 17 to 21 per cent, including 30 per cent of children.^[9] It is clear therefore that cost-of-living will represent not merely a significant financial challenge but equally a challenge in public health terms, with demand and need for intervention having the potential to rise dramatically in the coming months and years.

^[1] BBC News (2022) What is the UK’s inflation rate and why is the cost of living going up?: What is the UK’s inflation rate and why is the cost of living going up? – BBC News

^[2] BBC News (2022) Bank of England expects UK to fall into longest ever recession: Bank of England expects UK to fall into longest ever recession – BBC News

^[3] Office for National Statistics (2022) Consumer price inflation, UK: September 2022: Consumer price inflation, UK – Office for National Statistics

[4] The Resolution Foundation (2022) The art of expectations management: A bleak outlook from the Bank of England as it scales back rate hike expectations: The art of expectations management • Resolution Foundation

^[5] London Assembly (2022) Research shows Londoners are most affected by soaring inflation: Research shows Londoners are worst affected by soaring inflation | London City Hall

^[6] London Assembly (2022) London housing market report: October 2022: Housing Market Report – October 2022

^[7] The Resolution Foundation (2022) The price is right: The April 2022 energy price rise and the Government’s response: The price is right? • Resolution Foundation

^[8] BBC News (2022) British Gas owner Centrica and Shell see profits soar as bills rise: British Gas owner Centrica and Shell see profits soar as bills rise – BBC News

^[9] The Resolution Foundation (2022) In at the deep end: The living standards crisis facing the new Prime Minster: https://www.resolutionfoundation.org/publications/in-at-the-deep-end

Looking ahead: anticipating upcoming and future economic challenges for Londoners

Whilst there are positive signs that the financial impacts of the pandemic may not have materialised to an extent as severe, broad reaching or long-term as was originally forecast, it is clear that for many Londoners the financial impact of coronavirus is just one of a series of crisis events that dents financial resilience and makes the cost of living and supporting themselves and their families more difficult.

The economic legacy of COVID-19 is just one of many challenges that Londoners, and in particular those belonging to lower income households is being forced to face as we head into the latest stage of pandemic recovery.

In recent months the global price of energy has increased by record levels, resulting in inflation across nearly all sectors of the economy as businesses are forced to pay more for energy and transport and must therefore raise the price of products to cover costs. This has meant a sharp rise in the cost of living, which is not supplemented by a proportionate rise in wages, and therefore means that households are paying more for the same lifestyle, with less disposable income and reduced capacity to accumulate long term savings.

The ongoing strike action across public services is a clear consequence of this discrepancy between income and soaring costs, as working people find it increasingly difficult to support themselves and their households in the face of added expenses. It is evident that this crisis will be a source of stress and uncertainty for many, inevitably contributing to higher rates of debt, loan applications and reliance on food banks.

Low-income families which already make up a large proportion of the ‘multi-struggler’ group in terms of their financial vulnerability are predicted to be the group which will be most severely hit by this increased cost of living.

Following the financial stress imposed by the pandemic, the removal of the £20 uplift in Universal Credit, and the worn-down resilience from repeated crises of those Londoners already facing systemic inequities; this impending cost of living crisis has the potential to significantly worsen people’s financial situations and have a detrimental effect on their mental health and wellbeing. Debt, food insecurity, fuel poverty and deprivation and the isolation and uncertainty that is inextricably tied to these issues provides an environment which enables poor mental health and wellbeing to flourish on a population wide scale. Given that mental health referrals within the NHS reached record levels of 4.3 million last year, and with 1.4 million people still waiting to start treatment, the cost-of-living crisis should now be understood to be the most significant threat to public mental health on the horizon over the coming months.^[1]

^[1] The Royal College of Psychiatrists (2022) Cost-of-living crisis threat of ‘pandemic proportions’ to mental health, warns UK’s leading psychiatrist: https://www.rcpsych.ac.uk/news-and-features/latest-news/detail/2022/06/20/cost-of-living-crisis-threat-of-pandemic-proportions-to-mental-health-warns-uk-s-leading-psychiatrist

Moving Forward: Thrive LDN’s role on economic wellbeing

It is already clear that the challenges posed by the cost-of-living crisis are being felt unevenly across London, exposing differences in vulnerability across geographies and social groups. In response to this, it is vital for London to take a public mental health approach to its response to ensure that the wellbeing of Londoners is prioritised alongside the growth of London’s economy.

Working in partnership with Thrive LDN’s Economic Wellbeing Forum, a group of multi-sector organisations with responsibilities regarding the prevention of financial crisis and the response to the cost-of-living crisis, in addition to flagging trends in outcomes and experiences, the following opportunities have been identified to influence a pan-London response and mitigate the impact of the crisis on Londoners’ mental health and wellbeing:

• Provide mental health awareness training to front line workers in direct contact with those struggling financially, e.g. through debt advice services, food banks and community aid groups, so that they can identify those at risk of poor mental health and start a dialogue with them, signposting them to support and resources.
• Encourage partnership working across sectors in order to flag existing training options/grants/community initiatives on offer and expand rollout and awareness throughout the network and in communities.
• Consider the development and rollout of physical resources and initiatives that establish contact with those digitally excluded who fall disproportionately into the lowest income household quintiles, ensuring that cultural and linguistic competence is a central focus.
• Embed financial and mental wellbeing support in social prescribing options and ensure that those struggling with mental health/financial issues are provided with concrete, tangible actions that allow them to feel more in control of their situation.
• Generate awareness campaigns to raise population wide awareness of the close bidirectional relationship between financial difficulties and poor mental health and further awareness of the existing support available for both.
• Expand Thrive LDN’s Economic Wellbeing Forum membership to incorporate membership from a wider range of frontline organisations and groups in the cost-of living crisis, in doing so enabling a broader range of insights and greater knowledge sharing across partners.