Utility price hikes sees consumers further scale back spending

10 April 2023 Consultancy.uk 5 min. read
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The growth of the UK economy looks set to come under further pressure in the coming months, as consumers further scale back their purchases in 2023. As the government withdraws what little support was on offer for households dealing with spiralling energy bills, and inflation still booming, more than half of UK residents have already cut their ‘non-essential’ spending.

‘Non-essential’ spending is a heavily politicised term, often bandied about as common-sense shorthand for spending on products humans cannot function without. That is most often assumed to be rent or mortgage payments, bills, food and transport to work – while virtually everything else is categorised as ‘non-essential’. That means alongside things broadly understood as unnecessary for a life worth living – for example, impulse purchases, dining out, or jewellery – items like pet food and electronics are also considered luxuries.

In an increasingly digital world – in which everything from banking to job-hunting, to tax returns and government services is moving into app-based interactions – classifying electronics which enable the use of those services as ‘unnecessary’ is arguably narrow-minded. Similarly, owning a pet is commonly considered ‘optional’ and therefore its expenses are also labelled as discretionary, despite the proven mental health benefits of animal guardianship – something employers supposedly have a great interest in, at least with regard to an individual’s productivity in the workplace. Arguably, spending on something which enables them to work more effectively is as ‘essential’ as the transport which gets them to the office, then.

Since the start of the year consumers have further reduced spending - as rising telecoms prices hit

When reports like KPMG’s recent Consumer Pulse Survey are released, politicised assumptions around non-essential spending often see them downplayed, in this case. A common line is that working class consumers must ‘spend within their means’, and if they simply tighten their proverbial belts, everything will be fine – they still have food and shelter, after all. But this underestimates the wider-ranging impacts so-called non-essential spending has on the lives of those people, and their ability to adequately function at work or in society.

KPMG’s finding that 55% of consumers reduced their non-essential spending since the start of 2023 will have broader implications than people simply making do with fewer shiny things in their house. As 20% of shoppers cut back on technology spending, 25% reduce their use of transport, 32% forego spending on home maintenance and improvements, and 17% reduce fitness spending, a portion of the UK’s working population will be left less able to participate in digital life, while finding themselves more isolated, less physically fit, and in homes which are less fit for purpose.

Amid this, living standards are set to fall by 7% in the UK over the next two years, according to the Office for Budget Responsibility. Partially, this is because alongside energy companies, other utility providers are also looking to cash in on the current economic picture – well above the rate of inflation they are citing as the reason for price hikes. A 51% majority told KPMG that broadband prices had risen since the start of 2023, alongside 49% of mobile users. This is likely to be compounded in the coming months, with millions of consumers with O2 and Virgin Mobile contracts facing 17.3% increases in their bills for making calls, sending texts and using data – with the UK’s current 12-month inflation rate sitting at 10.1%.

Consumers plan to further reduce their non-essential spending as support for energy bills decreases

This is some distance from the predictions of some experts at the start of the year, who suggested that to avoid becoming the target of political campaigns, the self-regulated telecoms sector would actually implement price rises below the rate of inflation. Either way, though, telecoms will remain less of a strain than energy bills in the coming months. With the government planning to greatly reduce those supported with their electricity and gas payments in 2023, and the energy price-cap set to rise to £3,000 per-year in July, half of consumers say they will have to further reduce their non-essential spending to cope.

Linda Ellett, UK Head of Consumer Markets, Retail and Leisure for KPMG, commented, “With energy, mobile, and broadband costs set to rise for many households from April, a number of consumers will likely have to further cut back their discretionary spending. Already in 2023, over half of the consumers that we spoke with have reduced their non-essential spend.  Buying behaviour also continues to change as shoppers look to lower costs – including switching to discounters, buying more own brand and value produce, and searching out promotional prices.”

Beyond the social and human impacts of this, the decline in consumer spending power still to come is likely to further impact the UK’s economic health throughout the year. The country has been flirting with recession for months, and according to previous KPMG research, the chief cause of the UK’s current slump is a fall in consumer confidence. The firm found shrinking wages in real-terms had reduced consumer spending, seeing business growth across the country grind to a halt – further bringing the notion of ‘non-essential’ spending into question.