Tuesday, 5 July 2022 – 01:09

UK cost of living crisis set to make 2022 the “year of the squeeze”

The Resolution Foundation has warned that “a cost-of-living crisis will soon become the most pressing economic issue facing the country”, even in the wake of disruption from Omicron.

The Resolution Foundation, an independent think-tank, has warned that the UK is set to face a “cost-of-living catastrophe” in 2022, from a combination of decade-high inflation rates, falling real wages, and energy bills and taxes increasing.

Real wages were stagnant throughout October and almost certainly fell over the past month, with the Resolution Foundation saying further real wage growth is not expected until the end of 2022, with real wages expected to be just 0.1% higher at the end of the year than at the beginning. The foundation stated that:

“By the end of 2024, real wages are set to be £740 a year lower than had the UK’s (already sluggish) pre-pandemic pay growth continued.”

The government is set to review their energy price cap in April, with energy bills expected to increase by at least £600, as energy companies pass on the cost of rising gas prices to their customers. This is expected to bring the percentage of household income spent on energy bills from 8.5% to 12% for the UK’s poorest households.

Torsten Bell, Chief Executive of the Resolution Foundation, said:

“The overall picture is likely to be one of prices surging and pay packets stagnating. In fact, real wages have already started falling, and are set to go into next Christmas barely higher than they are now.”

“The peak of the squeeze will be in April, as families face a £1,200 income hit from soaring energy bills and tax rises. So large is this overnight cost of living catastrophe that it’s hard to see how the Government avoids stepping in.”

The foundation recommended the government take the following actions:

  • Reducing the size of the energy cap rise directly. Compensating energy suppliers for a six month, £200 reduction would cost around £2.7 billion, or £450 million if focused on lower-income households on Universal Credit.
  • Extending the time period over which the costs of supplier failures are recouped, with the £100 bill rise reflecting a policy of recouping costs over a single year.
  • Moving environmental and social levies currently added to electricity bills into general taxation, saving households £160 per year and costing up £4.5 billion per year.
  • Extending and increasing the Warm Homes Discount.

In response to the report, a government spokesperson said that the government recognised that people are facing pressure with the cost of living, adding this is why they are taking £4.2bn of “decisive action” to help, including by introducing the universal credit taper.

Shadow Work and Pensions Secretary, Jonathan Ashworth, 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.”

He added that Labour would scrap VAT on household heating bills over winter, and not increase National Insurance costs at “the worst possible time”.

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