Andrew Dismore

Introduction

 

We are entering a period of “Brexit Squeeze” where the increase in prices are outstripping wages as a result of the uncertainty surrounding what a post-Brexit UK will look like.

 

What was previously unthinkable now seems increasingly likely and a no-deal Brexit now seems perfectly possible. Theresa May used to proclaim that ‘no deal is better than a bad deal’ but it always seemed unlikely this was any more than a bluff – a feint in negotiations. Now hopes of an agreement appear to be fading  and the Prime Minister has given the clearest sign yet that a no-deal Brexit could be a real option, saying the country must be prepared for the possibility.

 

There’s plenty of debate and analysis about what a no-deal situation might mean for trading partnerships and business. However, the impact on individual households and their personal finances is likely to be just as profound.

 

London is an expensive city to live in with the cost of housing being far higher than the rest of the UK combined with the higher prices of goods and services. With the weak pound, stagnating wages and the Government’s cuts to welfare, Londoners have seen costs increase further.

 

Our City Hall Labour Group survey highlighted that Londoners are struggling financially as 90% of respondents felt that the issue of prices had worsened over the past 15 months and 71% have seen wage growth slow concurrently. One in five respondents (21%) felt that the cost of living should be one of the Government’s priorities besides Brexit.

 

Increase in cost of living since Brexit

 

• The consumer price index (CPI) measures changes in the price level of market basket of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.

 

• CPI now stands at 2.7% compared to 0.8% in June 2016.[1] Wages went up by 2.1% which means a real terms pay cut for many Londoners.[2]

 

• The decrease in the value of the pound since the referendum has increased the cost of imported goods, which is being passed on to customers.

 

• A sharp rise in food prices at the beginning of this year added £21.31 to the average household shopping bill as the price of everyday goods at supermarkets rose 2.3% in the three months to 26 March from a year ago.[3]

 

 

Impact on rising cost of living

 

• In the last two years the household debt figure has increased, fuelling concerns that the UK’s GDP growth is already dependent on consumer borrowing. The International Monetary Fund has issued a warning to governments that rely on debt-fuelled consumer spending to boost economic growth, telling them they run the risk of another major financial collapse.[4]

 

• The debt charity Stepchange has warned that 6.5 million people have used credit to pay for basic items such as food after a change in their circumstances. MPs have called for an independent commission to examine the effects of rising household debt levels in the UK.[5]

 

• As wages stagnate and prices increase, more Londoners are going to be pushed into poverty. 27% of Londoners live in poverty after housing costs are taken into account and the majority of people living in poverty are in a working family.^[6]

 

• Research by the British Chamber of Commerce found that 68% of 1,500 businesses questioned expected their costs to increase in 2017 as a result of the increasing cost of imports due to the weak pound, and 54% said that this will result in an increase in the prices they charge customers for their goods and services.

 

City Hall Labour Group survey on Brexit

 

• In July 2017, we launched a survey asking Londoner’s their views on Brexit – where their concerns lay, whether they had changed their mind on how they voted a year ago and whether they feel well informed about the negotiations currently underway between the UK Government and the EU. We received over 4,000 responses from across London.

 

• The survey highlighted that Londoners are struggling financially as 90% of respondents felt that the issue of prices had worsened over the past 15 months and 71% have seen wage growth slow concurrently. Furthermore, 87% feel that the performance of the economy has got worse and 71% feel that wage growth has got worse.

 

• One in five respondents (21%) felt that the cost of living should be one of the Government’s priorities besides Brexit. This, alongside the growing problem with personal debt and increase in the use of food banks, indicates that increasing prices and stagnating wages are putting Londoners under increased financial strain. Moreover, this will impact on London’s businesses as consumers will cut back spending on non-essential items and services.

 

• Overall, the three areas that Londoners feel that the Government should prioritise in the talks are: access to single market (75%); the right to remain for EU residents (64%); and freedom of movement (56%). Six months into the negotiations, the Government are still to make headway in these areas.

 

• The Government is pursuing a ‘hard Brexit’ claiming it was the will of the people but the referendum question did not ask what type of Brexit people would like to see. 81% of respondents would prefer to see a soft Brexit and 40% of respondents commented to say that they do not want to leave the EU at all.

 

 

 

[1] ONS, (12.09.2017), CPIH: % change over 12 months, date accessed 05.10.2017

[2] ONS, (13.09.2017), LMSB SA AWE total pay WE growth yr on yr 3 months average, date accessed 05.10.2017

[3] The Guardian, (04.04.2017), Sharp rise in UK food prices inflates household shopping bills, date accessed 05.10.2017

[4] The Guardian, (05.10.2017), IMF warns that using consumer debt to fuel growth risks crisis, date accessed 05.10.2017

[5] The Guardian, (05.10.2017), IMF warns that using consumer debt to fuel growth risks crisis, date accessed 05.10.2017

[6] Trust for London: London’s Poverty Profile, Key facts, date accessed 05.10.2017