A recent study tracking the impact of the cost-of-living crisis in Britain has revealed that approximately 2.5 million households are at a “high risk” of financial vulnerability or other problems and may require assistance to meet their financial obligations.
The analysis, conducted by the Vulnerability Registration Service (VRS) and data firm Outra, was based on the number of households registered with the VRS and extrapolated across the country’s population.
In addition to the high-risk households, the study also identified 6.3 million households at an “elevated” risk of vulnerability, indicating a need for some support to manage their bills.
The Scale of Vulnerability
With an estimated 28 million households in the United Kingdom in 2022, the study’s findings highlight the magnitude of the financial vulnerability issue in the country.
The ongoing cost-of-living crisis, characterized by stagnant wages and soaring inflation, has resulted in the most significant squeeze on living standards since the 1950s.
As mortgage and rental costs increase due to higher borrowing costs, the situation is expected to worsen for many households.
Consumer Spending and Impact of Inflation
Despite the challenging circumstances, consumer spending has remained relatively stable thus far, supported by savings accumulated during the COVID-19 pandemic and a low unemployment rate.
However, recent official retail figures have unveiled the true toll of inflation on consumers. While spending in value terms in May 2022 was 17% higher than in February 2020, reflecting pre-pandemic levels, volumes experienced a decline of 0.8%.
This decline has led many consumers to opt for cheaper ranges of products, as observed by supermarkets.
Regional Disparities and Vulnerability Hotspots
According to the VRS and Outra survey, the north west and north east of England face the greatest financial pressure, with four out of ten homes in these regions deemed to be at high or elevated risk of vulnerability.
These areas bear the brunt of the cost-of-living crisis, emphasizing the need for targeted support and intervention.
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The Role of the Vulnerability Registration Service
The VRS plays a crucial role in informing landlords, banks, and utility companies about households experiencing financial difficulties. It defines vulnerability as struggles related to finances, health issues, or bereavement, which can quickly escalate if left unaddressed. Currently, approximately 400,000 households are registered with the VRS, signaling the need for increased support services.
Government Initiatives and Consumer Protection
Finance minister Jeremy Hunt recently held a meeting with regulators to discuss measures aimed at preventing profiteering by companies. The implementation of a new Consumer Duty on July 31 will establish enhanced consumer protection standards, particularly for vulnerable individuals.
The Financial Conduct Authority, responsible for introducing this duty, reported an increase of 3.1 million people struggling to meet bills and credit repayments since May 2022, bringing the total to 10.9 million.
Conclusion
The study’s findings shed light on the significant risk of financial vulnerability faced by millions of households in the UK. The cost-of-living crisis, coupled with stagnant wages and soaring inflation, has created a challenging environment for many individuals and families.
It is crucial for government agencies, regulators, and service providers to work together to address this issue effectively. By providing support, implementing consumer protection measures, and targeting areas with high vulnerability, the UK can strive toward alleviating financial struggles and ensuring a more secure future for its citizens.