Rising costs

Households face ‘cost of living catastrophe’

debt
Higher bills loom in the new year

Households face a ‘cost of living catastrophe’ next year thanks to soaring energy bills, tax increases and weak wage growth, according to a think tank report.

The Resolution Foundation warns that families face a hit of at least £1,200 as inflation reaches 6% and wholesale gas prices continue to rise.

Its quarterly Labour Market Outlook says 2022 will be the “year of the squeeze” on people’s finances. Analysts predict that households could pay double what they did 12 months ago.

April is expected to be a crunch point, when consumers are hit with huge rises to gas and electricity bills at the same time as a hike in national insurance contributions. Council tax is also likely to go up. Rail fares will rise by an average 3.8% from next month.

The foundation calculated that the typical energy bill would rise by about £600 a year. Others forecast the government’s energy price cap will jump by more than £700 to around £2,000 a year for the average household.

Labour’s Jonathan Ashworth, the shadow work and pensions secretary, said: “Heating bills are going through the roof, punishing tax rises are on the way, wages are stagnating, universal credit cuts have hit struggling families hard. All while prices in the shops are rising, and inflation risks eroding the value of savings and pensions.”

The report warns that, while Omicron will cause “huge disruption” to firms and public services in early 2022, a cost-of-living crisis will soon become the most pressing economic issue facing the country.

Labour’s Jonathan Ashworth, the shadow work and pensions secretary, said: “Heating bills are going through the roof, punishing tax rises are on the way, wages are stagnating, universal credit cuts have hit struggling families hard. All while prices in the shops are rising, and inflation risks eroding the value of savings and pensions.”

The report warns that, while Omicron will cause “huge disruption” to firms and public services in early 2022, a cost-of-living crisis will soon become the most pressing economic issue facing the country.

The Resolution Foundation argued that tackling rising energy prices should now be the government’s “top priority”. It recommended reducing the price cap by around £200 and using public funds to compensate suppliers for revenues they will lose as a result.

Shifting green levies from people’s energy bills onto general taxation could cut bills by a further £160 a year, the report said. The change is one of several that energy suppliers called for in talks with ministers this week, which have so far failed to produce an agreement.

Suppliers are urging the government to cut VAT on energy bills, from 5% to zero, and to look at an industry-wide funding scheme that would allow the costs of surging gas prices to be recovered from customers over several years.

Liberal Democrat Treasury spokesperson Christine Jardine said: “The report painted a “stark” picture of the reality facing families and businesses.

“Wages are falling in real terms, and things will get worse in April, when the chancellor’s manifesto-breaking tax hikes will further eat into household incomes. People need action now.”

A government spokesman said it is taking “decisive action” which includes reducing the universal credit taper, supporting households through the Energy Price Cap, and other initiatives such as Winter Fuel Payments, Cold Weather Payments, and the Household Support Fund.



One Comment to Households face ‘cost of living catastrophe’

  1. One way to cut energy costs would be for all the energy firms to have a maximum wage of £52000 per year and no bonuses. After all if a person can’t manage their home on £1000 per week why would anyone trust them to manage anything.

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