Lowest earners see spending power fall as energy bills deepen squeeze

The UK’s lowest-earning households were the only ones to see their spending power fall over the past year, as rising energy and essential costs put increasing pressure on those least able to absorb rising costs, according to Asda’s latest Income Tracker.

The latest figures show the gap between the highest-and lowest-earning households has widened by £30 a week over the past year and the lowest earning fifth now face a £71 weekly shortfall.

The figures come as UK inflation rose to 2.9% in July, up from 2.6% in June, driven largely by higher household energy bills. Energy inflation rose sharply to 4.6%, from 1.2% in June, following the latest reset of the Ofgem energy price cap.

With the lowest-earning households having an average income of just £11,000 and spending a significantly greater proportion of their income on essentials, the latest increase is placing a disproportionate burden on those already facing the tightest budgets.

Asda’s Income Tracker highlights the uneven impact of rising household costs:

The lowest earning fifth were the only income group to see their spending power decline year on year, leaving them with a £71 weekly shortfall.
The gap between the highest-and lowest-earning households widened by £30 a week over the past year.
Essential costs rose by 3.6% in July, up from 3.1% in June and marking the first acceleration since March.
Under-30s were hardest hit by essential costs, which accounted for 68.2% of their gross income. Higher housing costs, lower early-career earnings and rising youth unemployment are adding to the pressure facing younger households.
Older households saw some of the strongest income growth of all age groups, with gross incomes rising by 4.8% among those aged 65 to 74 and 5.0% among those aged 75 and over—outpacing all working-age groups.

The pressure is unlikely to ease in the immediate term, with the Ofgem energy price cap due to reset again in October.

The recently announced removal of VAT on energy bills should provide some relief for households, particularly those with the least room in their budgets to absorb further increases.

Reacting to this month's Income Tracker, Sam Miley, Head of Forecasting and Thought Leadership at Cebr, said: “July was always going to be a difficult month. The Ofgem price cap was reset to reflect price changes in global energy markets, which have been massively disrupted by the conflict in the Middle East. Though the warmer weather may have encouraged less energy consumption, households still faced a significant increase in costs on a per unit basis. This will keep impacting consumers for the rest of Q3.

Beyond this, there are some more encouraging developments. The price cap will again be reset from Q4, which will coincide with the recently announced tax cut on bills, providing respite for households. Meanwhile, non-energy price growth largely slowed in July, including for several essential categories such as food and transport. The extent to which this continues will be key to the outlook for the Income Tracker.”

The latest figures underline the increasingly uneven impact of the cost of living, with the lowest-income households facing a combination of rising essential costs and falling spending power, leaving them particularly exposed to further increases in household bills.

Asda remains focused on helping customers make their money go further, with the supermarket consistently recognised in independent surveys by Which? and The Grocer for its low prices.

You can view this month’s Income Tracker, here.