FACULTY OF BUSINESS AND LAW

DEPARTMENT OF ECONOMICS, POLICY, AND INTERNATIONAL

BUSINESS

COURSEWORK ASSESSMENT SUBMISSION ON POLITICAL ECONOMY AND

ECONOMIC POLICY

ESSAY ON THE UK GOVERNMENT CAN AND SHOULD DO MORE TO TACKLE

THE CURRENT COST OF LIVING CRISIS

SUBMITTED BY:

ADEBAYO HAROUN SANNI

STUDENT I.D: 22551078

24TH May, 2023

Table of Content

I. Understanding the Cost-of-Living Crisis.

II. The Role of Government in Addressing the Crisis.
III. International Examples of Effective Cost-of-Living Interventions.
IV. Policy Recommendations for the UK Government.
V. Conclusion
Assessment Task:

“The UK government can and should do more to tackle the current cost-of-living
crisis”. Discuss.

Introduction:

The cost of living has emerged as a critical issue impacting both individuals and
families all across the United Kingdom and the whole world in general and the
escalating expenses associated with basic human needs such as housing, education,
healthcare, and other essential goods and services have resulted in a cost-of-living
crisis and the situation is challenging the financial stability and well-being of citizens.
This essay explores the root cause of the cost of living crisis we are all witnessing and
the pressing need for the UK government to take more comprehensive action in
addressing this crisis. By examining international examples and drawing upon
relevant research, this essay argues that proactive government intervention is
essential to alleviate the burden on citizens and ensure a more equitable society.

I can describe my personal understanding of cost-of-living crisis as a situation in

which the overall expenses required for basic necessities and the standard of living
exceed the financial capacity of an individual or a single household family, therefore
leading to economic hardship and social challenges. The situation of cost of living
crisis is characterized by a rapid increase in the cost of essential goods and services,
such as housing, healthcare, education, food, and transportation etc, outpacing wage
growth and eroding people's purchasing power and this phenomenon has far-
reaching consequences for individuals, families, and communities, as the crisis can
lead to financial insecurity, poverty, inequality, and reduced social mobility.

One of the key factors contributing to the cost-of-living crisis particularly here in the
UK is the rising housing costs and in recent years housing prices and rental rates have
skyrocketed in major cities and many urban areas such as London, Manchester,
Birmingham, Glasgow etc and making it increasingly difficult for individuals and
families to afford suitable accommodation. Additionally, to the rising housing cost
and rental rates is the healthcare expenses which has also have increased in recent
times with the cost of health insurance, prescription drugs, and medical services
outpacing income growth. Education expenses, including tuition fees and student
loans, have also risen sharply, placing a heavy burden on students and their families.

Another aspect of cost of living crisis which most families are experiencing here in
the UK is the cost of daily needs, such as food and transportation and the prices of
food items has increase exponentially since the COVID-19 pandemic and also since
Russia invaded and started the war in Ukraine last year. Inflation have sky rocketed
globally since 2021 and the effect of inflation which is the rise in cost of everyday
need such as food and transportation, disproportionately affect low-income
households who are struggling to afford to pay for food and reliable transportation
and the situation is further exacerbating the socioeconomic disparities between the
rich and the poor. Education is also not left out in the cost of living crisis and most
students and parents are going through a difficult financial burden with increase in
education expenses such as tuition fees and student loans

The cost of living crisis has a profound impact on individuals' financial well-being and
quality of life, as many people are forced to make difficult choices, such as cutting
back on essential expenses, accumulating debt, or working multiple jobs just to make
ends meet. The crisis can lead to increased stress levels, mental health issues, and
serious strain on family relationships.

Understanding Cost of Living Crisis in the UK.

I cannot write about the cost of living crisis in the UK without having adequate
understanding of the situation here in the UK. I observed that the cost of living crisis
in the UK is driven by a combination of factors that have contributed to the rapid
increase in the expenses required to meet basic needs to maintain a reasonable
standard of living. Some of the factors that I have observed include housing costs,
stagnating wages, rising healthcare expenses, and inflationary pressures.
Housing costs are a significant contributor to the cost-of-living crisis in the UK
because the demand for housing, particularly in urban areas, has outstripped the
supply and the situation has led to soaring property prices and rental rates.
According to the Office for National Statistics, the average house price in the UK
increased by over 10% in the year leading up to August 2021 and the shortage of
affordable housing options has left many individuals and families struggling to find
suitable and affordable accommodation, therefore putting them at risk of housing
insecurity.

Another factor is the stagnating wages which affects employees both in public and
the private sector of the UK economy and the lack on increase in wages have also
played a role in exacerbating the cost-of-living crisis due to the fact that while
inflation and the cost of living have been on the rise, wage growth has not kept pace
with rising cost of living. The Resolution Foundation, a UK think tank, reported that
average weekly earnings in the UK were still below pre-financial crisis levels in 2019
and the situation has led to a decline in real wages which erodes people's
purchasing power and making it increasingly difficult to cover the rising costs of
essential goods and services.

The rising healthcare expenses in the UK is another critical factor that have
contributed to the cost-of-living crisis in the UK. The National Health Service (NHS)
which is the cornerstone of the UK's healthcare system has been under massive
budget constraints and the increase in demand for NHS services to the general public
in the UK have put so much pressure on the availability and affordability of
healthcare services provided by the NHS. The cost of prescription drugs, medical
treatments, and private healthcare services has risen significantly and it is creating so
much financial burdens for individuals and families. A study published in The Lancet
found that healthcare spending in the UK increased by 3.3% per year between 1997
and 2016, which is contributing to the overall cost of living crisis.

Other Inflationary pressures such as increased energy costs, global supply chain
disruptions and rising commodity prices have further amplified the cost-of-living
crisis in the UK. The Bank of England, which sets monetary policy in the UK, aims to
maintain inflation at a target of 2%, but fluctuations above or below this target can
impact the cost of living for individuals and families.

Lastly in understanding the factors affecting the cost of living crisis in the UK, I agree
with the views that the crisis requires comprehensive policy measures and initiatives
that may include implementing measures to increase the supply of affordable
housing, promoting wage growth and income equality, investing in the NHS to ensure
affordable and accessible healthcare services, and monitoring and managing
inflationary pressures through monetary policy. Additionally, some social safety nets
and support systems can also be put in place to play a crucial role in providing
assistance to those most affected by the cost of living crisis.

The Role of Government in Addressing the Crisis.

The UK government plays a crucial role in addressing the cost of living crisis by
implementing policies and measures aimed at mitigating the financial challenges
faced by individuals and families. Some of the measures put in place by the UK
government covers the areas such as housing affordability, wage growth, healthcare
accessibility, and social support systems. Several academic studies provide insights
into the effectiveness of government actions in tackling the cost of living crisis in the
UK and one of the key areas where the UK government intervenes is the housing
affordability policies such as affordable housing programs, rent controls, and
initiatives to increase housing supply. Research by Monk and Whitehead (2020)
highlights the importance of government intervention in providing affordable
housing options and recommends the implementation of comprehensive housing
strategies to address affordability issues.

Wage growth is another crucial aspect of the cost of living crisis and the UK
government has taken measures to promote fair wages and ensure income growth
for workers through policies such as minimum wage increases, tax reforms, and
support for training and education are implemented to enhance workers' earning
potential. A study by Bell and Machin (2018) emphasizes the positive impact of
minimum wage policies on raising wages for low-income workers and reducing
income inequality.

Healthcare accessibility and affordability are also a vital concerns in addressing the
cost of living crisis and the UK government provides funding and support to the
National Health Service (NHS) to ensure accessible healthcare services for all and it is
of significant importance for the public funding by the UK government in maintaining
a sustainable and equitable healthcare system, which is essential in mitigating the
financial burden of healthcare costs on individuals and families.

In terms of social support systems, the UK government implements various measures

to assist individuals and families facing financial hardships with support which
includes social welfare programs, tax credits, and income support. A study by Brewer
et al. (2021) examines the impact of income support programs on reducing poverty
and inequality and also highlighting the role of government intervention in providing
a safety net for those most affected by the cost of living crisis. Furthermore, Brewer
et al. (2021) emphasizes the importance of a comprehensive and coordinated
approach by the UK government in tackling the cost of living crisis and some their
suggestions includes integrating housing, wage, healthcare, and social policies to
address the interconnected nature of the challenges faced by individuals and
families. Another study by Hood et al. (2020) also emphasize the need for a holistic
approach and policy coherence to effectively tackle the cost of living crisis and
reduce socioeconomic inequalities.

It is important to note that the effectiveness of government actions in addressing the

cost of living crisis can vary, and continuous evaluation and monitoring of policies
are necessary to assess their impact.
International Examples of Effective Cost-of-Living Interventions.

Several European countries have implemented various interventions to address the

cost of living challenges faced by their populations with such interventions focusing
on areas such as housing, wages, healthcare, and social support systems. One
effective intervention in housing affordability is the provision of social housing and
countries like Austria, Denmark, and the Netherlands have implemented successful
social housing programs to ensure affordable and secure housing options for low-
income individuals and families. Research by Scanlon et al. (2019) highlights the
positive impact of social housing in reducing housing costs and improving housing
stability for their vulnerable populations. Apart from social housing, wage policies
also play a very significant role in addressing the cost of living crisis and countries like
Germany and Sweden have implemented sectoral minimum wage systems, which set
wage standards specific to industries or occupations. Academic studies by Dustmann
et al. (2018) and Hoekstra et al. (2018) demonstrate the positive effects of sectoral
minimum wage systems on increasing wages for low-income workers and reducing
income inequality.

Another example of intervention to mitigate the cost of living crisis in other European
countries is the provision of universal healthcare systems. Countries like France and
Germany have implemented comprehensive healthcare systems that ensure
accessible and affordable healthcare services for their populations. Research by
Mossialos et al. (2016) also highlights the effectiveness of universal healthcare in
reducing financial barriers to healthcare and improving health outcomes.
Furthermore, social support systems, such as income support programs and tax
credits, have been implemented in several European countries to mitigate the
financial challenges faced by individuals and families. The Nordic countries, including
Denmark, Finland, Norway, and Sweden, have a very strong social welfare systems
that provide comprehensive support to their population and a study by Fritzell et al.
(2018) demonstrates the positive impact of income support programs in reducing
poverty and inequality in Nordic countries.

In terms of childcare support, countries like Sweden and France have provided
effective interventions to address the high costs associated with childcare with the
provision of generous subsidies, affordable childcare options, and parental leave
policies. Studies by Bergstrom et al. (2017) and Esping-Andersen et al. (2018)
highlight the positive impact of such interventions in reducing childcare costs and
facilitating work-family balance for citizen of the countries I mentioned above.

It is worth noting that the effectiveness of these interventions can vary depending on
the specific context and implementation. Continuous evaluation and monitoring of
policies are necessary to assess their impact and make necessary adjustments,
nevertheless, the examples I gave above demonstrate successful interventions which
has been implemented by those countries and that can inform policy discussions and
inspire potential solutions to tackle the cost of living crisis here in the UK..

Policy Recommendations for the UK Government.

To address the cost of living crisis in the UK, the government can consider
implementing a range of policy recommendations that target key areas such as
housing, wages, healthcare, and social support systems. Below is some of my
description of the policy recommendations which can ease the pains of the cost of
living crisis on the British population are described below.

Housing affordability: The UK government can adopt policies to increase the supply
of affordable housing, such as incentivizing the construction of affordable homes and
social housing. Additionally, measures to regulate rental costs and enhance tenant
protections can be implemented. Research by Whitehead et al. (2021) highlights the
importance of increasing the availability of affordable housing options to alleviate
the burden of housing costs.

Wage growth: Policies aimed at promoting fair wages and reducing income
inequality can be pursued. This includes considering increases in the minimum wage
and supporting sectors with low wages through sectoral wage agreements. Studies
by Machin and Van Reenen (2018) and Bell and Machin (2019) demonstrate the
positive impact of minimum wage policies on raising wages for low-paid workers.
Healthcare accessibility: The government can prioritize investments in the National
Health Service (NHS) to ensure affordable and accessible healthcare services. This
measures includes addressing workforce shortages, increasing funding for healthcare
infrastructure, and improving primary care access. Research by Mays et al. (2019)
emphasizes the need for sustained investment and effective management of
healthcare resources to mitigate the financial burden of healthcare costs.

Social support systems: Strengthening social welfare programs and income support
such as improving the accessibility and generosity of welfare benefits, enhancing tax
credits, and expanding targeted support for vulnerable population can help
individuals and families cope with the cost of living crisis and study by Brewer et al.
(2017) highlights the positive impact of income support programs on reducing
poverty and inequality.

Childcare affordability: Policies that support affordable and high-quality childcare

can alleviate the financial strain on families. This policy could be in the form of
expanding subsidized childcare options, increasing investment in early childhood
education, and implementing family-friendly workplace policies. Studies by Blau and
Tekin (2017) and Del Boca et al. (2020) explains the effects of affordable childcare on
maternal employment and child development.

These policy recommendations are not exhaustive but provide a starting point for
addressing the cost of living crisis in the UK. A comprehensive and coordinated
approach is crucial, taking into account the interconnected nature of these
challenges. Regular evaluation, monitoring, and adjustments to policies are
necessary to ensure their effectiveness in mitigating the cost of living crisis and
improving the well-being of individuals and families.
Conclusion.

The cost-of-living crisis in the UK demands urgent attention and action from the
government and by drawing lessons from successful international examples, the
government can adopt a comprehensive approach to tackle the crisis effectively.
Through income and taxation policies, housing affordability measures, improved
education and healthcare access, and consumer protection initiatives, the UK
government can alleviate the burden on its citizens and create a more equitable
society and it is also imperative for the government to recognize the urgency of the
situation and prioritize proactive intervention, ensuring a better quality of life for all.
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