Prices have risen rapidly over the last year, with inflation rising from the Bank of England’s target rate of 2.0% to 10.1% in the twelve months up to July 2022. This has largely been caused by the rising cost of energy, which is expected to continue to push inflation to the highest levels in a generation by the end of 2022.

Despite lower regional rates of inflation in London, high levels of inequality and higher cost of living in London means many low-income Londoners are highly vulnerable to increasing prices. This poses considerable risks to households across the capital, with huge increases in the cost of living threatening to wipe out household finances and leave many unable to afford the essentials.

This briefing note examines the scale of the crisis facing the London and the UK, and the disproportionate impact on low income households. It also explores a wider set of factors that affects people’s ability to cope with record price increases. It concludes with a series of recommendations for central and local government to address the challenges arising from the cost of living.

Key findings:

• Despite lower regional rates of inflation in London (reflecting different patterns of expenditure), many households in London will be among the worst hit by high inflation.
• Households in London face an additional bill of £7 billion in 2022-23 compared to 2021-22 from rising energy costs, increasing to £16 billion in 2023.
• With energy prices forecast to rise further, the poorest 20% of households in London face inflation rates that are 1.8 times higher than the richest 10% of households.
• Londoners’ non-discretionary spend will increase substantially, with the lowest income households in London required to spend more than 80% of their budgets on essentials, such as food, energy and housing.
• Low-paid Londoners are especially vulnerable to the price shock, with real wages for the lowest paid in London decreasing since the financial crisis, falling by 3% for the 10% lowest paid in London (compared to a 12% increase at UK level for the 10% lowest paid).

Recommendations are:

1. The Government should urgently implement a national package of support to help with the increase in energy prices, targeting greatest help at low-income households. This should involve a mix of capping energy prices, cutting taxes and additional direct payments.
2. The Government, Greater London Authority and London Boroughs should provide greater information and advice to improve access to available support, maximise benefit take-up and reduce energy usage.
3. The Government, Greater London Authority and London Boroughs should invest in energy independence, microgeneration, and energy efficiency and promote energy efficiency.