Why the richest 5% are going to get richer during the cost of living crisis

We are more than a year into the cost of living crisis, with households across the country suffering huge increases to their food, energy and housing bills.

The impact of spiralling inflation hits poorer households harder, though, and a report by the left-leaning Resolution Foundation think tank further lays this bare – showing the only people to see their wealth increase in the next two years will be the top 5% of earners.

Here, Yahoo News UK breaks down, over nine short points, the wider picture and why this is the case.

Living standards 'disaster': The Resolution Foundation report emphasised how much of a "disaster" 2022 was for living standards. As inflation hit a record 41-year high, government support packages weren’t able to keep up – and real-term median household income is set to fall by 3% in 2022-23.

£2,100 hit: Worse is coming, the report said, with median income set to fall by an even bigger 4% in 2023-24. The Resolution Foundation said a two-year fall of 7% would be bigger than in the financial crisis of 2007-08 – and equates to a typical household being £2,100 worse off.

Poorest hit hardest: All this has an unequal impact, with the poorest households hit harder than the richest. Amid the spiralling inflation rates seen over the past year, low-income households have felt the effects more because they spend a greater proportion of their money on essentials such as food and energy.

What this can mean: The report authors said nearly a quarter (23%) of survey respondents – equivalent to 12 million people – said they could not afford to replace or repair their fridges, washing machines or other big electrical goods. Before the coronavirus pandemic, only 8% said the same.

Read more: What the price of Lurpak reveals about the soaring cost of your weekly shop

Richer households see bigger income falls: It's also worth pointing out that due to higher mortgage bills, the richer the household, the greater the fall in income – even though their lives will be less impacted by these losses than poorer households, for the reasons outlined above. However, there is one exception to this income fall rule...

The richest 5%: In 2022-23 and 2023-24, the richest 5% are the only people who will see their incomes rise – by more than 4% – according to the report. This is because "the rising interest rates that drive those higher mortgage bills also raise the incomes of some households who see their savings and investment incomes rise". See the chart, below.

Richest households more likely to have investments: As the Resolution Foundation points out, "high-income households are much more likely to have money in savings or other financial investments". As a result, the income gained from these investments is more than enough to offset their drop in real earnings – and ultimately boost their income.

'Taking its toll': Resolution Foundation researcher Lalitha Try said in the wake of the report: "The crisis is already taking its toll on families, with over six million adults reporting they are going hungry as a result. Low-income families have been hit hardest by soaring energy bills and food prices, and are most likely to have seen both their financial circumstances and their health deteriorate. The government has rightly prioritised them in its crisis response."

Income inequality rises: It comes after a separate report, released last month by the Office for National Statistics (ONS), highlighted the extent of income inequality in the first year of the cost of living crisis. It found disposable income inequality increased 1.3% in 2021-22... following a decrease of 1% in 2020-21.