Cost of living: households could face economic ‘disaster’ in 2022, with many set for £1,200 hit to the income

According to an economic think tank, UK consumers will suffer a financial setback next year as stagnant earnings, increasing tax, and energy prices combine to create a “cost of living crisis” starting in the spring.

Family incomes could be hit by £1,200 per year, according to the Resolution Foundation (RF), as a result of government metrics such as the 1.25 percent increase in National Insurance (NI) contributions and the freezing of personal income tax stipend, which will combine with high inflation, tax changes, and a cap on energy bills. The Russian Federation has designated 2022 as the “year of the pinch.”

How are bills modified?

According to providers, consumers will bear a £25 billion financial burden due to the gas and electricity crises, who predict that family rates might jump to $2,000 or more.

Kwasi Kwarteng, the Business Secretary, had emergency negotiations with suppliers on a zoom call, also attended by officials from the Treasury and Number 10 in the United Kingdom.

Stephen Fitzpatrick, the creator of Ovo Energy, believes that the United Kingdom is on the verge of a huge cost of living catastrophe.

“Bills will inevitably approach £2,000 per home – more than twice the amount they were paying last year,” he added.

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Inflation in the United Kingdom reached a ten-year high in November. It is predicted to grow much higher in 2022 due to increasing wholesale gas costs, which are driving up energy expenses.

Energy price caps restrict how much a corporation may charge; however, after being reviewed in February, it is proposed that the ceiling be raised once again, this time in April 2022.

According to projections, the limit on energy costs is anticipated to climb by almost £500 each year. When combined with an additional £100 increase to recuperate the expenses connected with energy company failures, this may result in a typical annual energy bill increasing by around £600.

According to the think tank, the hike in the price ceiling in April will greatly affect low-income families since they will be forced to spend a greater proportion of their earnings on energy. 

Households with the lowest incomes would see their expenditure on gas and electricity increase from 8.5 percent to 12 percent of their total income.

According to the RF, the freezing of the personal tax limit at £12,570 per year and the rise in personal, national insurance contributions by 12.5 percent would cost the typical family £600 per year.

The increase in national insurance will add an average of £750 a year to families’ income in the top 50 percent of incomes. It is estimated that real earnings have “very probably” begun to decline and will not recover until the last three months of 2022, implying that the real living wage is just 0.1 percent higher than it was at the beginning of the year.

According to predictions, real salaries in the UK would be £740 per year lower by the end of 2024 than they would have been in the country’s pre-pandemic pay growth had persisted.

What has been stated?

Torsten Bell, the chairman, and chief executive of RF, stated: “Omicron will be in the forefront of everyone’s thoughts when the year 2022 gets underway. 

Nonetheless, although the economic effect of this new wave is unpredictable, it should be short-lived at the very least. As a result, 2022 will be remembered as the “year of the squeeze.”

“The general picture is likely to be one in which prices continue to rise, but wage packages remain stagnant. Real wages have already begun to decline, and they are expected to be scarcely higher than they are currently by the time Christmas rolls around next year.”

In response to the loss of £1,200 in income in April, he said, “Because the magnitude of this overnight cost of living calamity is so great, it’s difficult to see how the government can resist intervening.

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“Targeting April’s energy bill spike should be at the top of the list of the government’s new year’s pledges, especially for the poorest families, who will be the worst impacted by increasing gas and electricity costs.”

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