There are other ways to tackle the cost of living crisis — just ask France and Spain

New figures out this week showed inflation increasing again to 4%. Inflation figures have ticked up — but even when they are dropping, any inflation number above zero means prices are still getting higher. Following last year’s autumn statement, the poorest households will be £200 a week short of an acceptable standard of living. In 2023 the UK consistently suffered a worse cost of living crisis than other wealthy comparable European nations.

But it’s not just everyday necessities that have been placed out of reach of UK households. Families have also been robbed of the support that’s been common among governments in countries like Spain and France.

In the UK, this government did implement some policies to ease the impact of price shocks. This included financial support towards energy bills, a £2 cap on bus fares, an energy price freeze and the cost of living and winter fuel payments.

However, Spain has had far more success in supporting households throughout the cost of living crisis and its government recently decided to keep some policies in place for several more months. Spain went further than the UK and:

• Cut VAT on basic foodstuffs like eggs, pasta, vegetables and fruits, until June 2024.
• Introduced a tax credit for people buying electric vehicles, until the end of 2024.
• Reduced the cost of public transport, which this January has been replaced with free transport for unemployed and those under 18 years old.
• Capped rent rises for tenants at 2% until the end of 2023, rising to 3% at the start of this year.
• Limited the wholesale price of gas by subsidising producers to keep the prices of electricity down for consumers.

The soaring cost of energy following Russia’s invasion of Ukraine fuelled the rise in the UK’s inflation rate. Our government attempted to ease the financial pressure on household bills by limiting consumer prices at the end of the process. Spain, on the other hand, tackled high energy prices at the source, by decoupling the wholesale price of electricity from international gas prices and limiting the wholesale price of gas. Part of the subsidy to keep the prices down is paid by the consumers benefiting from this scheme in their bills while the rest is absorbed by the government. According to the Bank of Spain, this reduced inflation by 0.5% in 2022.

Taking a similar approach, the French government:

• Gave financial aid to households for their energy bills.
• Capped electricity tariff increases.
• Capped rent rises at 3.5%.
• Struck a deal with leading supermarkets who agreed to offer shoppers the lowest possible prices for a basket of everyday essential goods, for a three-month per
• Limited the increase in energy bill tariffs for consumers.

Unlike the UK and Spain, the French electricity market is not as dependent on gas so was less impacted by volatile gas prices. Fossil fuels only accounted for 14% electricity generation in 2022, compared to 36% for Spain and 40% for the UK. This meant the French approach to energy policy differed. The French government capped 2022 energy tariff increases to 4% for 2022, which limited bill increases for 70% of residential electricity consumers. They also froze gas prices through 2022.

French politicians also implemented a National Energy Sobriety Plan. This plan consists of 15 policies aimed at influencing households, businesses, local and government departments to cut their energy consumption, permanently, by 10% by 2024. These measures include a ​“sobriety bonus” to incentivise households to reduce their energy demand. Civil servants were incentivised to work from home with compensation of €2.88 a day, and French commuters were given a €100 incentive to carshare. The most ambitious policy was actually introduced in 2020, and gave households up to €9,000 to install domestic heat pumps, boosting installation numbers.

In their attempts to support their populations through the cost of living crisis, the UK, Spain and France have spent roughly the same amount, as a proportion of their gross domestic product (GDP). The UK’s costs amount to 2.7% of GDP, while France and Spain allocated 3.5% and 2.2% respectively.

According to the Organisation for Economic Cooperation and Development (OECD), from February 2021 until May 2023, the UK allocated a total of US$86bn towards protecting businesses and households from the rise in the cost of living, while Spain and France allocated $431.7bn and $98.4bn, respectively.

International energy prices are dropping, and are likely to continue to fall. But despite April 2024 prices still forecast to be a third higher than pre-crisis levels, the remaining support packages for those on benefits or disability will be cancelled in the spring.

French and Spanish policies led to lower inflation rates than the UK during 2023, although in recent months the UK has been catching up. Their policies are also forward-thinking: rather than just giving direct subsidies to households, France and Spain attempted to ease the cost of living crisis by enabling more energy efficiency and energy demand reduction – through making it cheaper for people to do things like take public transport, choose an electric car, or install heat pumps.

France and Spain used the cost of living crisis as an opportunity to make green choices far more accessible to their populations, which will bring down their carbon emissions in the future. The UK government could learn a lesson or two.

Image: iStock