If you’re concerned about the cost of living crisis, we’ve compiled everything you need to know about rising costs along with advice on where to turn if you find yourself struggling.
What changed on April 1?
While prices have been steadily rising for some time, April 2022 saw some dramatic overnight changes that had a severe impact on many households. These changes included:
- Ofgem increasing the energy price cap by 54 per cent, meaning a nearly £700 annual rise in bills for those who pay by direct debit
- A national insurance increase – dubbed the health and social levy by ministers – of 10 per cent, which experts warned would affect the lowest earners the most
- Council tax rising by around 3.5 per cent, meaning those in band D could face paying around £2,000 annually
- A freeze on the income tax threshold, meaning a real-terms cut in take-home earnings for most
- Water bills rising by an average 1.7 per cent
- Lateral flow tests will no longer be free for everyone in England, to be followed by the rest of the UK in coming weeks
Changes that also came into effect were:
- A benefits increase of just 3.1 per cent, in the face of inflation which could hit eight per cent
- The biggest hike in rent prices for social housing tenants in more than a decade
- An increase in the National Living Wage – the minimum wage for over-23s – which is too small to compensate for the rise in living costs, amounting to a real-terms cut for some
- A rise in VAT for hospitality businesses, which will be passed onto customers in the form of higher price points
And to top it all off, MPs gave themselves a pay rise of £2,000 per year, to £84,000.
This represents a 2.7 per cent increase, in line with average public sector pay and lower than the percentage increase in universal credit, but will still be a thumb in the eye to those struggling to make ends meet.
What do we mean by ‘cost of living crisis’ – and why is it happening?
A “cost of living crisis” simply refers to a scenario in which the cost of everyday essentials like energy and food is rising much faster than average incomes.
You may have heard the term “inflation” used a lot in relation to this. Inflation simply measures how fast costs have risen year on year, expressed as a percentage.
The most recent rate of inflation was recorded in June as 9.4 per cent. This means that the cost of everyday essentials is about 9.4 per cent higher than in June 2021.
The crisis we’re experiencing currently is particularly severe because there are several different factors pushing up prices across the board, rather than just certain items becoming more expensive.
Some of the pressures pushing up prices include:
- A high demand for oil and gas outstripping available supply. The Ukraine conflict has exacerbated this further, with a large amount of supply usually coming from Russia
- Pandemic support awarded by the government coming to an end, such as reduced VAT rates for hospitality businesses
- Disruptions to global supply chains, partly driven by Brexit and the pandemic
- Reduced staffing levels across various businesses for the same reasons
While the impact of rising prices is being felt across the globe, differing policies mean that some households are being better shielded than others.
In France for instance, the government prevented the energy price cap from rising by more than 4 per cent, forcing national energy supplier EDF to absorb extra costs instead.
This stands in contrast to the UK, where ordinary households have been forced to absorb a rise of 54 per cent to their energy bills while suppliers like British Gas have recorded record profits.
The energy price crisis began brewing last year as demand for oil and gas worldwide outstripped the available supply.
This imbalance has made energy more costly to purchase. As a result, energy companies have faced higher costs and have passed these along to consumers in the UK in the form of higher energy bills.
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The ongoing conflict in Ukraine has pushed up prices even further, but the war is not the sole driver of higher energy costs, as some politicians have implied.
The cost of energy increased dramatically in April after energy regulator Ofgem lifted the energy price cap.
The energy price cap limits how much energy suppliers are allowed to charge their customers, and this rose by 54 per cent in April.
This affected people who were on default energy tariffs, and saw bills increase from an average of £1,277 annually to £1,971 annually.
People on prepayment meters also saw their bills rise, with the average bill rising from £1,309 to £2,017 – a jump of £708.
The price cap is expected to rise again in October, to an average of £3,359 per year.
Ofgem also recently announced that it would change the frequency of price cap adjustments, allowing the cap to be changed on a quarterly basis rather than a bi-annual basis.
This means the cap will rise again in January, with forecasts predicting that bills could reach almost £4,000 per year.
The announcement was met with fury by poverty campaigners and charities, who slammed the move as “simply inhumane”.
Usually customers can shop around for better deals on their energy, but high prices across the board have made this difficult.
Rent, bills and mortgages
The average cost of renting a home has risen to record levels, with rents jumping by more than 20 per cent in some areas like Manchester, data from property website Rightmove suggests.
Average rents outside London are now around 11.8 per cent higher than a year ago, while rents within the capital are up by around 15.8 per cent.
It’s believed that the sharp increase can be attributed to the level of demand for properties being higher than the number available for rent.
Already, data shows that private rents are unaffordable for the poorest in the country, with data from 2021 showing that there are just two areas in England where the poorest families spend less than 30 per cent of their income on rent costs.
Data also shows that no region in England is affordable for a woman on a median salary to rent a private home.
Private tenants on lower incomes are being hit particularly hard, with many finding themselves priced out of affordable homes or facing unreasonable selection criteria from landlords.
Housing costs have also been pushed up further for many by an increase in council tax bills earlier in the year, with around two-thirds of councils deciding to raise rates.
In many areas, the increase has been the maximum permitted without consulting residents – 2.99 per cent.
Mortgage holders have also been hit by an increase in costs as the Bank of England has increased the base interest rate in an attempt to tackle inflation. This means repayments will be more expensive.
Many mobile phone and broadband providers are also putting up costs, with BT, for example, adding £42 per year onto bills for customers.
You should check with your broadband and mobile providers to see whether any increases are ahead, and consider shopping around for a cheaper deal to reduce costs.
According to analysis from retail analysts Kantar, families are facing a £454 increase in average annual grocery bills as inflation soars.
Butter, milk and pet food are among the products which have seen the largest increase in price.
The rising cost of food has been a primary concern for poverty campaigners, with food banks reporting an increase in demand for their services which could force them to ration how much food goes into a parcel.
According to market analysts Kantar, grocery prices rose at their fastest pace in more than
With inflation set to keep rising, and the conflict in Ukraine creating disruption to supply chains, prices are expected to continue rising for some time.
From April 6 to April 5 2023 national insurance contributions will increase by 10 per cent, which ministers said will be used to tackle massive backlogs in the NHS and, in the coming years, improve social care services.
Ministers and much of the media have been describing the increase as 1.25 percentage points — from 12.5 per cent to 13.25 per cent. While this is accurate, it downplays the scale of the increase and differs to how many other changes are being presented.
National insurance is paid in part by employers, and in part by employees.
The proposals have been particularly controversial because those over state pension age, who are likely to benefit most in the short-term, do not have to pay it.
Sunak announced in his Spring Budget, however, that the threshold at which national insurance is paidwill be raised by £3,000, from £9,568 a year to £12,570, matching the rate at which income tax must be paid.
At the start of March, rail fares rose by 3.8 per cent, heaping further misery on households already facing rising living costs.
In spite of calls to scrap it, the government defended its decision to go ahead with the rise, saying the hike taking place in March gave commuters ample opportunity to purchase season tickets at old prices.
Labour have criticised the decision, however, saying that commuters will see average fares rise to 48.9% more than they were in 2010.
Shadow transport secretary Louise Haigh said: “Families already facing soaring taxes and bills will now be clobbered with an eye-watering rise in the cost of the daily commute. Many will wonder what planet ministers are on if they think people can afford this?”
Beyond a one-off ticket sale, the government has not announced that it will lower ticket costs for consumers. This stands in contrast to countries like Germany, where nine euro tickets now cover travel across the country for a whole month.
How much worse-off will the cost of living crisis make me?
In April, the government uprated pension payments, benefit payments and the minimum wage.
While pension and benefits rose 3.1 per cent, the minimum wage rose 6.6 per cent.
With inflation now standing at 9.4 per cent, however, these gains have been wiped out by increased costs.
Most households are now facing a decline in living standards, with average wages failing to keep up with inflation.
Poorer households are being hardest-hit, however, due to the fact that low income households spend the largest proportion of their income on expenses like energy bills.
The Institute for Fiscal studies has warned that poorer households are facing a higher inflation rate as a result.
“So far, the government’s measures to reduce the impact of these bill rises have been shockingly inadequate,” Luke Murphy, associate director for energy at the Institute for Public Policy Research, said.
“To prevent this energy crisis becoming a living standards catastrophe, the government needs to get targeted support to those with the greatest need.
What is the government doing to tackle the cost of living crisis – and when will it go down?
Following criticism from several quarters, the government has announced a package of further cost of living measures, adding to measures previously announced in the spring statement.
These measures included:
- Replacing a former £200 energy loan with a one-off grant of £400 to be paid to everyone in October.
- Giving two one-off payments amounting to £650 to those in receipt of benefits
- One off payments of £300 to pensioners receiving the Winter Fuel Payment
- One off payments of £150 for disabled people in receipt of disability benefits
- Adding another £500k to the Household Support Fund
Earlier in the year, the spring statement contained some other measures to tackle cost of living pressures. This included:
- Cutting fuel duty by 5p in the pound
- Extending the Household Support Fund
- Reducing the basic rate of income tax for 2024
- Raising the national insurance threshold
Households have additionally received a £150 rebate on council tax if they fall into bands A-D.
For the time being, the cost of living crisis looks set to continue, with inflation predicted to rise further. It is not yet clear when prices will start to come down as this depends on a variety of global factors.
Where can I get help if I’m struggling– and what support do I have to pay back?
If you’re struggling during the cost of living crisis, there are a number of different ways you can seek help.
As mentioned above, one-off payments will be available to a variety of different groups. These should be paid to you automatically, but you can find guidance on the government’s website. They are grants, so you don’t have to pay them back.
With regards to energy bills, the government has a host of existing schemes you may be able to apply for. This includes the Warm Home Discount and Winter Fuel Payment.
Citizens advice has a comprehensive list of grants and schemes for paying your energy bills on its website.
Water suppliers have schemes available to help customers pay their bills, so if you are struggling in this instance, this should be your first port of call.
For rent, you may be able to get help through claiming universal credit, which has now replaced housing benefit.
If you already claim benefits, and they don’t cover your housing costs, you may be able to get a discretionary housing payment through your local authority, which can help to cover the shortfall.
Council tax relief is also available via your local authority if you’re struggling to pay. You can find out more about applying for council tax reduction through the government’s website.
If you pay your bill by direct debit and are in council tax bands A-D, you should get an automatic rebate. If you pay another way, you should check with your local authority to check how you can claim.
Your local council may also be able to help you if you’re struggling to buy essentials like food – and you don’t necessarily need to be in receipt of benefits to get help.
Alternatively, you could seek help from a food bank if you’re having a hard time paying for meals. The Trussell Trust – the largest UK food bank organisation – has a list of food banks you can access on its website.
Citizens Advice has a comprehensive guide on what to do if you’re struggling with living costs of all kinds, and can be contacted to help signpost you to services which can help.
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