Exploring the UK’s economic policies in the lead-up to the 2024 General Election, the Women’s Budget Group highlights the gendered impacts of these policies and suggests alternative fiscal measures from other OECD countries to better address the cost-of-living crisis for women.
Dr Zubaida Haque
Deputy Director and Head of Research and Policy, Women’s Budget GroupThe 2024 General Election has been called for the 4th of July. Labour’s Rachel Reeves will be challenging Chancellor Jeremy Hunt for the keys to Number 11 Downing Street, and for the chance to be the UK’s first female Chancellor of the Exchequer.
Reeves recently accused the Government of ‘gaslighting’ the British public over the state of the economy and challenged the Conservative Government’s message that their “plan is working”. This looks likely to be part of Labour’s core messaging going into the six-week General Election campaign.
The Economic Realities Behind Political Claims
The Shadow Chancellor of the Exchequer has a point. Rishi Sunak and Jeremy Hunt’s claim that the “economy is turning a corner” is far from the reality of the state of the economy and the public’s lived experience of the cost-of-living crisis.
A recent poll by the campaign group Stop the Squeeze found that close to 90 per cent of the public think the cost-of-living crisis is still ongoing – not only are people struggling with staying on top of their bills and housing costs but recent data from Citizens Advice shows that many are sliding into negative budget almost every month.
The headline measure of inflation may be improving, but prices are 22 per cent higher than they were two years ago. Rent inflation is at 8.9 per cent. Perhaps the starkest figure is this one from Trussell Trust: 655,000 people turned to food banks for the first time between April 2023 and March 2024 because they found that their incomes were not covering the cost of essentials like heating and food.
It is still a bleak picture for many people in this country.
There has been a lot of debate between the political parties about what the right economic policies and financial packages are to address the cost-of-living crisis in this country. What has been discussed less is whether the conventional monetary approach, relying overwhelmingly on interest rates only to control inflation, to address the cost-of-living crisis has been the right one for this country.
The argument is this: if the current financial crisis is driven by demand issues (e.g. a wage spiral), then monetary policy, focusing predominantly on interest rates and perhaps led by a central bank, is the most appropriate response. But if the shock to the economy is supply-driven (as is the case with global disruptions to supply chains because of the impact of the Russian invasion of Ukraine), then tackling the causes and consequences of the cost-of-living crisis should mainly be the responsibility of government via fiscal policy (as well as coordinating fiscal policies with monetary policy).
Why is this distinction important? Because a conventional monetary policy, focusing on interest rates only to suppress inflation, in a supply-driven scenario may bring down inflation to one extent but could also severely worsen the crisis for many people by driving up the cost of borrowing, debt-repayments, and mortgages.
A Gendered Perspective on the Cost-of-Living Crisis
The economy is not distinct from the people it is made up of. We have every reason to believe that hiking up interest rates has particularly exacerbated the cost-of-living crisis for lower-income groups and, in particular, women.
Women in the UK provide 50 per cent more unpaid care and domestic work than men. This leaves women with less time for paid work, which means lower weekly and monthly incomes, which means they have less savings than men. This diminishes their economic resilience and there is considerable evidence to show that women, including Black and ethnic minority and disabled women, have been less able to afford the soaring price rises in food, energy, and housing costs.
Interestingly, despite the cost-of-living crisis being a global crisis, not all OECD countries have taken the same economic approach to addressing high inflation. A recent report by the Women’s Budget Group explores some of the alternative fiscal measures taken by some of our OECD peers and explores the likely gendered impact of those measures.
Spain’s experience not only suggests that a combination of monetary and fiscal measures may be more effective in tackling inflation (rather than focusing predominantly on monetary policy), but also particular fiscal policies – such as increasing social security payments; indexing minimum wage, pensions, and benefits to inflation measures; protecting against evictions; implementing rent controls; reducing VAT on food items and public transport fare costs – were more likely to have had beneficial impacts on women because women, on average, are more affected by these factors than men.
When Spain increased the minimum wage in 2023, Labour Minister Yolanda Diaz said the minimum wage was “the best, most feminist tool to improve women’s social rights”.
Examples in other countries (e.g. Australia, Canada, the Netherlands, and France) of fiscal policies that are likely to disproportionately benefit women include reducing childcare fees, extending the list of price-capped essential foods, and providing assistance for private rental housing costs. Because women earn less than men, they are less able to afford housing. Women’s caring responsibilities also mean they have specific needs when securing a suitable home for themselves and their children.
The UK’s policy response to the cost-of-living crisis has spanned both monetary and fiscal policy, but it is arguable whether the right balance has been struck. On the monetary policy side, the Bank of England increased the interest rate to 5.25 per cent, the highest level since 2008. The Government, in charge of fiscal policy, provided means-tested payments and support with energy bills to buffer households from soaring prices. These cost-of-living payments increased the income of many households, but the financial support was either for a limited period or one-off payments, and with little recognition that soaring costs of private rental housing, energy and food bills, and essential public services (such as public transport), disproportionately affected women.
Our review of policy responses to the cost-of-living crisis, across a number of OECD countries through a gendered lens, tells us that both the UK Government and the Opposition can learn much from the economic approaches taken by some of our peer OECD countries during the cost-of-living crisis.
Women have not only been the shock absorbers of poverty in the UK, but they have been living the cumulative financial brunt of austerity cuts, the COVID-19 pandemic, and now the cost-of-living crisis. This is not sustainable for women. Nor does it work for the economy.
It is astounding how often the Treasury forgets that women represent over half the population.
This is just one of the articles that features in the ‘equality, diversity and inclusion’ section in Chamber UK’s pre-election journal. To gain free, online access to the journal, please subscribe here.
