A Bleak Outlook: The Looming Cost-of-Living Catastrophe in the UK
The Resolution Foundation has warned that millions of families in the UK will face significant financial difficulties in 2022. The organization’s report predicts that households will be hit with a £1,200 a year decrease in their incomes due to several factors, including higher energy bills, stagnant wages, and tax increases.
The report highlights the impending rise in the energy price cap and National Insurance contributions, both of which are set to come into effect in April. It notes that the 1.25% increase in National Insurance contributions will cost the average household £600 a year, while the energy price cap rise is expected to add an additional £500 to spending.
Furthermore, the collapse of many energy firms will see an additional £100 added to gas and electricity bills, with customers of these companies potentially paying higher tariffs than their previous energy deals.
The surge in wholesale gas prices has also been a contributing factor to the financial difficulties faced by UK households. Experts predict that these prices could take average annual gas bills to about £2,000 next year, with the cost of living in the UK having already surged by 5.1% in the 12 months to November, marking the highest increase in a decade.
The Resolution Foundation warns that inflation is set to peak at 6% in the spring, which could lead to a fall in real wage growth that has been flat since October. Torsten Bell, chief executive of the foundation, notes that “the overall picture is likely to be one of prices surging and pay packets stagnating.”
The report highlights that poorer families will be the worst hit by these developments, as they spend a higher proportion of their income on energy. The foundation recommends that the government immediately remove VAT from household energy bills over winter to help households. It also suggests removing “some of the environmental social policy costs that we have seen increase over the years” to alleviate the financial burden on households.
The government has put measures in place to support families, including reducing the Universal Credit taper, cold weather payments, and a freeze in alcohol and fuel duty. However, the report warns that the economic outlook for households in the UK is bleak and that the government may face increased pressure to take action to alleviate the situation.
In conclusion, the UK is facing a looming cost-of-living catastrophe that could have significant impacts on millions of families. The report by the Resolution Foundation highlights the rise in energy bills, stagnant wages, and tax increases, all of which could lead to a £1,200 decrease in household incomes. The government has put measures in place to assist families, but the foundation warns that the economic outlook for households in the UK is bleak and that immediate action is needed to alleviate the situation.