What Drives the Cost of Living Crisis?
Energy Prices
Pre-2021, the Ofgem energy price cap was £1,042 per year. By October 2022 under Liz Truss, it peaked at £2,500 with government support capping the actual cap at £3,549. By Q1 2026, it had fallen to £1,849 — still 77% above pre-crisis levels. The crisis was driven by two forces: global energy supply shocks (Russia–Ukraine war, OPEC decisions) and underinvestment in UK renewable energy infrastructure under the Cameron–May years, leaving the grid reliant on gas.
Keir Starmer pledged to cut energy bills by £300 when Labour won in July 2024. By March 2026, bills have not fallen by £300 from the level at which the pledge was made. Instead, they have remained stubbornly elevated, protected by lower global commodity prices but weighed down by grid investment costs and network charges that are passed to consumers.
Food Prices
UK food price inflation hit 19.2% in March 2023 — the highest in 45 years according to ONS data. A typical weekly shop that cost £100 in 2020 cost £126 by 2024. Food bank usage doubled since 2019 according to Trussell Trust analysis. The Sunak government's £10 billion cost of living support package included £1,200 per household but was poorly timed, arriving after the worst of inflation had already squeezed household budgets. Lower-income households, which spend 40%+ of income on food and energy, bore the brunt.
Wages
Real wages (inflation-adjusted) fell sharply from 2022–2023 in what the Resolution Foundation termed the "worst stretch of real wage decline" in 200 years. The average worker was £1,200 per year worse off in real terms than in 2010. The minimum wage has increased substantially but has not fully compensated for lost ground at the median. Public sector workers (nurses, teachers, civil servants) saw real-terms pay cuts throughout 2022–2023, leading to widespread strikes. By March 2026, wages are recovering in nominal terms, but only slowly catching up to inflation losses.
Housing Costs
Average house prices rose from £174,000 in 2010 to £285,000 by 2024 — a 64% rise while nominal wages grew by only ~40%. Mortgage rates that were under 2% in 2021 rose to 5–6% by 2023 following Bank of England rate rises aimed at fighting inflation. A £200,000 mortgage that cost £900 per month in 2021 cost £1,200+ per month on remortgage in 2023. First-time buyers were effectively priced out of the market in most English regions. Rents also rose dramatically: the average rent rose from £900 to £1,350 per month in the same period. The government's Help to Buy scheme was designed for first-time buyers earning less than £60k, but it expired in 2023 and was not replaced with equivalent support.
Council Tax and Water Bills
Average Band D council tax in England rose from £1,439 in 2010 to £2,171 in 2024 — a 51% rise. Water bills rose 40% over the same period. These are effectively unavoidable taxes on households. The government capped energy price rises but did nothing to cap council tax or water bills, pushing fixed costs relentlessly higher.
Prime Minister by Prime Minister: The Record
Tony Blair (1997–2007)
Real wages rising throughout. The late 1990s saw strong wage growth, especially in public sectors. Housing became expensive but credit was easy and widely available. Mortgage affordability was not a political crisis. Cost of living was not a defining political issue. Blair's government presided over the longest period of uninterrupted real wage growth in modern British history. By 2007, however, house prices had already tripled from 1997 levels, sowing the seeds of the post-2010 unaffordability crisis.
Gordon Brown (2007–2010)
Credit crisis struck in 2008. Food and fuel prices spiked globally. Real wages were squeezed. However, Brown's government deployed social transfers (tax credits, winter fuel payments, benefit rises) to protect most working-age households from the worst of the shock. The Retail Price Index fell into deflation in 2009, providing some relief. Brown's legacy was of a government that, facing genuine supply shocks, used fiscal policy to maintain household income floors.
David Cameron & George Osborne (2010–2016)
Austerity depressed real wages across the public and private sectors. Benefits were frozen. Energy costs rose. The foundations of today's crisis were laid here. The OBR later calculated that austerity-era public sector pay restraint cost British workers over £100 billion cumulatively in foregone income. Osborne's "long-term economic plan" nominally aimed to balance the budget but meant that public sector workers took pay cuts in real terms while the cost of living rose.
Theresa May (2016–2019)
Wages recovering slowly but Brexit uncertainty suppressed investment. Energy costs were stable-ish. May's government focused on managing Brexit rather than cost of living. When Theresa May did address energy prices, she introduced a price cap on energy bills — the first cap since 2008. However, this happened late (in 2019) and the cap was set too high to provide meaningful relief. Housing costs continued to rise; austerity continued; real wages remained below 2010 levels by her exit.
Boris Johnson (2019–2022)
Pre-COVID wages were recovering. The mini boom of 2019–2021 saw nominal wage growth accelerate, especially in hospitality and care sectors facing acute staff shortages. Then COVID-19 struck. Post-COVID inflation emerged. Supply chain disruptions, energy crisis beginning. The government's "Eat Out to Help Out" scheme in summer 2020 helped hospitality businesses and workers temporarily but did nothing to address household bills or food prices. By 2022, energy prices were spiking, and the foundation of the crisis was evident.
Liz Truss (49 days, Sept–Oct 2022)
Energy crisis at its peak. Mortgage rates surged following the mini-budget shock and gilt yield spike. Economically catastrophic. While Truss had no time to implement substantive cost of living policy, her mini-budget — which unfunded tax cuts while energy support was already the largest fiscal commitment in modern British history — spooked financial markets and caused a sharp rise in mortgage rates. The crisis became worse, not better.
Rishi Sunak (Sept 2022–July 2024)
Inherited the full crisis. Inflation hit 11.1% in October 2022. Real wages collapsed. Sunak's government rolled out £40 billion in energy support schemes — the largest ever peacetime fiscal intervention to protect household incomes. This prevented even worse outcomes. However, the crisis itself was not resolved. By his exit, inflation was taming (falling to 3.9% by March 2024), but living standards had taken a historic hit from which recovery would take years. Sunak's energy support softened the blow but did not prevent the underlying deterioration.
Keir Starmer (July 2024–Present)
Inflation near 2%. Real wages recovering. Energy bills have come down from the Oct 2022 peak, but council tax and water bills remain elevated. The crisis is fading but the damage is permanent. Starmer's government added a National Insurance rise on employers, which employers argue will further suppress wage growth. The government also announced a £22 billion annual NHS funding increase, partly funded by the NI rise. The cost of living is stabilising, but by early 2026, it remains well above pre-2021 levels across energy, food, and housing. Recovery will be slow.