[ad_1]
The government’s Energy Price Guarantee (EPG), which was designed to ensure that the cost of an annual energy bill for a typical-use household would be no higher than £2,500 for the next two years, will now end in April 2023.
The shock news was delivered in a statement today from the new Chancellor, Jeremy Hunt, on government economic strategy. He also confirmed that the Energy Bill Relief Scheme – which discounts wholesale energy prices for businesses and public institutions – will be reviewed rather than extended at its scheduled end-date of April 2023.
Both schemes will now be subject to a Treasury-led review. Find our the latest information at our energy updates page.
The Chancellor did not refer to the £400 support scheme, which will see around £66 trimmed off electricity bills each month for six months, which looks set to continue.
The Chancellor also axed all but two of the tax-cuts set out by his predecessor Kwasi Kwarteng’s 23 September mini-Budget, which you can find out more about with our update.
What is the cost of living crisis?
With rising energy bills one of the biggest concerns for UK households, the battle to keep heads above choppy financial waters remains intense.
Figures from the ONS report inflation for the 12 months to September at 10.1%, up from 9.9% in September and back to the same level seen in July – a 40-year high. And the Bank of England has forecast that inflation could approach a peak of 11% in October. The government’s target for inflation is 2%.
A staggering 91% of adults have reported an increase in their living costs compared with a year ago, while almost three-quarters (73%) say that costs have become more expensive in the last month alone.
The figures are according to the Office for National Statistics (ONS), which canvassed public opinion of nearly 5,000 households in Great Britain between 14 and 25 September.
It found that 44% of adults who were responsible for energy bills, and 28% responsible for mortgage or rent costs, were finding it ‘very or somewhat’ difficult to make the payments.
Among adults who are working, 15% reported carrying out more hours than usual in their main job, while 4% were forced to take a second job, found the ONS.
Why is it happening?
The conflict between Russia and Ukraine is the primary driver behind the cost of living crisis, but there are many other variables that have contributed to the ‘perfect storm’ afflicting UK household budgets in 2022:
- Covid: the effects of the pandemic cannot be underestimated. As well as the health impact, it has brought social and economic upheaval, from the multi-billion pound cost of furlough to devastation for the transport, travel, hospitality, entertainment and leisure industries. This economic fragility means the country is ill-prepared for the cost of living crisis
- Weather: an unusually cold winter in 2020/21, especially in parts of Asia, saw demand for energy rocket on international wholesale markets, which had an impact on supply and therefore on prices. The cost of gas was going through the roof long before Russia invaded Ukraine
- Economic resurgence: as Covid receded, so the manufacturing and distribution sectors kicked back into life, triggering a further surge in demand for energy and more upwards pressure on prices
- Regulation: more than 30 UK energy suppliers have gone bust since the start of last year with the cost of managing their customers shunted onto household bills. Now questions are being asked about why so many companies were allowed to flourish only to be brought down by higher wholesale prices
- Environmental concerns: most UK electricity has traditionally been produced by burning fossil fuels in power stations. The rise of the green agenda has seen a movement towards renewable sources of energy to produce electricity, such as wind and solar, with older power stations – particularly coal-fired ones – being closed as a result. But renewables are not yet able to provide sufficient power, meaning continued reliance on gas – which remains eye-wateringly expensive
- Supply chains: lorries need drivers and fuel. Both have been in short supply, and when the cost of distribution increases, so too does the cost of goods on the shelves. Looking at the international picture, where it used to cost £3,000 to ship a container from Asia to the UK, it now costs £15,000
- Agriculture: the farming and food production sector is a huge energy consumer – that’s one source of cost pressure. It also relies heavily on fertilizers that are produced using large amounts of energy – that’s another. And it needs an efficient and affordable distribution system, which has been lacking of late. Farmers are also paying higher wages because, thanks to Covid restrictions, there have been fewer European workers available for picking and packing tasks. All this means farm-gate inflation, and higher prices in the shops
- Commodity prices: the price of raw materials has risen due to escalating transport and distribution costs, and that inevitably contributes to inflation across the board. Worryingly, Ukraine and Russia produce significant proportions between them of the world’s wheat supply, along with other staples such as vegetable oil, so the longer the war goes on, the greater the effects will be felt elsewhere.
What bills have gone up?
Households will barely need reminding the bills that have gone up. But here’s a more detailed summary, including reasons behind the hikes and – most importantly – if there’s anything you can do about it.
Energy
Rocketing energy bills has remained the major driver behind rising living costs. And it’s an issue that’s far from resolved.
A new energy price cap of £3,549* as set by regulator Ofgem, had been due to take effect on 1 October, up from the previous £1,971.
This was superseded on 1 October by a new Energy Price Guarantee, announced by Prime Minister Liz Truss just days after she took office.
The Guarantee had promised to ensure that energy bills for a typical-use household would cost no more than £2,500 a year for the next two years. However following the Chancellor, Jeremy Hunt’s statement on 17 October, the scheme will now end in April next year.
The previously-announced £400 discount on electricity bills over the coming winter looks to be going ahead.
Even at current costs, people are struggling with 4-in-10 (44%) of those responsible for paying for energy now finding it ‘very’ or ‘somewhat difficult’ to afford their bill, according to the ONS.
But why has energy become so cripplingly expensive?
Wholesale gas prices, which had been climbing steadily during 2021 due to factors ranging from a unseasonably cold winter of 2020/2021 and lack of gas storage facilities, have been exacerbated by the conflict between Russia and Ukraine – Russia being a key international gas supplier.
And while, of course, it’s incomparable to the displacement and suffering of millions of Ukrainians, it’s made it cripplingly expensive for us in the UK to heat our homes.
It’s currently not possible to switch to a cheaper fixed rate tariff but we have outlined the support that is available if you simply can’t keep up with the rising cost of your energy bills.
*Annual cost for a household with average energy consumption on a ‘dual fuel’ gas and electricity standard variable rate tariff (SVT), paying by direct debit. The cap limits the price companies can charge per unit of gas, electricity and a daily standing charge – actual bills will be determined by consumption.
Petrol and diesel
High oil prices have also made filling up the tank much more expensive. For UK drivers, the average cost of diesel and unleaded petrol on 16 October 2022 stood at 185.84 and 164.49 per litre respectively, according to the RAC’s Fuel Watch. Costs have been falling from their peak and are set to fall further. However, the full discount of wholesale costs has not always been passed onto motorists.
An increase in the price of fuel was cited as the third most common reason for tighter budgets, according to the ONS, with 51% of people feeling the impact. Although, this was down from 71% in the last period, as petrol and diesel costs have fallen.
In his March Spring Statement, the then-Chancellor Rishi Sunak announced a 5p-a-litre cut in fuel duty for a period of 12 months, which took effect from 23 March this year. But while this shaved around £3 off the cost of filling the petrol tank of a typical 55-litre family car, it has been dwarfed by the soaring costs at the pumps.
Groceries
Food prices have also been steadily climbing due to factors ranging from changing global weather to distribution issues due to driver shortages. The increased price of food shopping was the number one reason behind higher living costs, said the ONS with 95% of households noticing the hike.
ONS figures show that a pint of milk in August 2022 cost 62p, compared to 43p in August 2021. Back in July the cost of a McDonald’s cheeseburger, which had remained fixed at 99p for the last 14 years, went up to £1.19p.
Two-thirds (66%) of households are spending less on non-essentials, found the ONS.
The benefit of turning to basic-brand food shopping is also diminishing with many budget food staples, such as pasta, eggs and cheese, rising faster in price than other foods.
Inflation
The rising costs of everyday items like these has pushed inflation to the highest levels in four decades. The Consumer Prices Index stood at 10.1% in the 12 months to September – over five times the Government’s 2% target. And some analysts are forecasting levels past 13% by January 2023.
Interest rate and the cost of mortgages
The Bank of England raised interest rates in September from 1.75% to 2.25%, putting the Bank rate at its highest level since 2008. The next decision will be on Thursday 3 November when interest rates are widely expected to rise again.
The latest hike – the seventh since December last year – will hit the pockets of two million UK households on variable rate mortgages almost immediately.
As an example, a tracker loan rate rising from 3.5% to 4% will cost almost an extra £60 a month on a £200,000 loan.
First-time buyers and those looking to remortgage are likely to find that this, and previous, interest rate rises have been factored into the cost of new mortgage deals.
For borrowers sheltered under a fixed-rate deal, costs will be higher when they come to remortgage, while first-time buyers able to raise a deposit in the wake of recent soaring house prices will face the same higher costs.
The Bank of England uses interest rate rises as a tool to tame rising inflation and further hikes are expected. However, the latest statment delivered by Chancellor Jeremy Hunt, which reversed nearly all of the tax cuts announced in last month’s catostrophic mini-Budget, may serve to restore some market stability, easing pressure on the Bank of England to raise interest rates.
It’s also worth noting that most lenders permit you to reserve your mortgage rate between three and six months in advance. This means that, if you are remortgaging your current home, you can effectively take advantage of ‘today’s mortgage rates tomorrow’.
The traditional price gap between short and longer-term fixed rate mortgages is also closing, with little difference in interest now between the cost of a 2-year and 10-year deal.
While interest rates are rising, Stamp Duty Land Tax (SDLT) in England and Northern Ireland has been cut. The SDLT nil-rate band – the threshold below which Stamp Duty does not need to be paid – is now £250,000 compared to the previous £125,000.
And first-time buyers, who currently do not pay SDLT on the first £300,000 on homes costing up to £500,000, will see the nil-rate band extended to £425,000 on homes costing up to £625,000.
Council Tax
In April 2022, Council Tax was hiked for millions of UK households. The average Band D council tax bill set by local authorities in England for 2022-23 is now an annual £1,966, which marks an increase of £67 or 3.5% on last year’s figure of £1,898.
However, as part of the Government’s wider package of support (more on this below), every household in Bands A to D in England will receive a £150 council tax rebate in 2022/23 which will not need to be repaid.
The payments will be made automatically if you pay your bill by direct debit, starting from April 2022 when the rises kick in. If you don’t pay by direct debit, you will need to apply for your rebate.
Council Tax payments should be considered as a priority, as you can be taken to court by your local authority for failing to pay. Certain households qualify for concessions, such as a 25% single person’s discount if you live alone.
You can find out more with our Council Tax Q&A, as well as what to do if you are unable to meet the cost.
Home entertainment
Netflix customers have been absorbing the roll-out of price hikes first announced back in March.
The cost of a basic Netflix package has risen from £5.99 to £6.99 a month, while a standard package has increased from £9.99 to £10.99 a month and its premium package from £13.99 to £15.99 a month.
Price hikes have been rolled out gradually with 30 days’ notice. They were necessary to ‘sustain its content output’ and compete with rivals including Disney+ and Amazon Prime, according to the streaming giant.
Amazon Prime subscriptions
Amazon Prime costs increased from 15 September. Monthly subscriptions rose by £1 to £8.99, while annual Prime membership rose from £79 to £95.
Mobile and broadband
Back in Spring, customers of BT and EE, Plusnet and TalkTalk, among others, were all hit with higher prices due to a clause that allows providers to hike costs once a year mid-contract by an amount linked to inflation in the preceding December. It’s the same story with customers of mobile networks such as BT and EE, Three and Vodafone, whose bills have also risen due to inflation-linked mid-contract price hikes.
Consumer borrowing
Consumer credit grew at a rate of 7% in the year to August, according to the Bank of England’s latest Money and Credit Report. Borrowing is rising quickest on credit cards at an annual rate of 12.9%, marking the fastest pace since 2005.
If you have credit card debt, make it a number one priority to transfer it to a 0% balance transfer deal (bear in mind that most charge a fee). If this is not possible, perhaps due to your credit score or an insufficient new credit limit, always try to pay more than the minimum payment required by the provider.
If the rising cost of living has cornered you into using a credit card just to pay for essentials, deals are available that offer an initial spending period interest-free. While this will offer breathing space, always ensure you can pay back your debt during this 0% period.
What’s the Government doing to help?
As well as the recently-shortened Energy Price Guarantee which will put an lid on rising energy bills until April next year, the government has made the following interventions:
Cost of living payments
Eight million households on means-tested benefits will each receive a £650 cost of living payment. The cash will be paid in two instalments. The first £326 was made between 14 July and 31 July, while the second will be made between 8 and 23 November.
As before, the £324 sum will be automatically paid into recipients’ bank accounts.
To qualify, you will need to have received one of the following benefits (or started a successful claim) since 25 May:
- Universal Credit
- Income-based Jobseeker’s Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
- Income Support
- Pension Credit
- Child Tax Credit
- Working Tax Credit
The money will be paid automatically and does not need to be repaid.
- Former Chancellor, Rishi Sunak also announced that pensioners who are entitled to a Winter Fuel Payment for winter 2022/2023, will receive a lump sum of £300. It will be paid alongside the regular payment from November and is in addition to any cost of living payment.
- Those in receipt of disability benefits received a £150 cash payment on 20 September.
Rise in benefit payments
- Mr Sunak also announced that benefits payable in the UK from April 2023, including the state pension, will rise in line with CPI as measured in September (10.1%). This is effectively a re-introduction of the ‘triple lock’ scheme which sees increases each tax year by the highest of three measures: consumer price inflation, average wage growth, or 2.5%.
Other financial support
- A rise in the threshold at which National Insurance Contributions (NICs) become payable on earnings, had also previoulsy been announced, bringing it into line with the income tax allowance of £12,570 per annum. This took effect on 6 July.
- The Government’s Household Support Fund was doubled from £500 million to £1 billion. This took effect on 1 April.
- All households in council tax bands A to D received a £150 rebate. This took effect from 1 April.
- There was a 5p-a-litre cut in fuel duty for 12 months. This took effect on 23 March.
- The planned 1p in the pound cut in the basic rate of income tax from 20p to 19p that had been brought forward to April 2023 has now been scrapped. The Chancellor Jeremy Hunt said the basic rate will remain at 20p “indefinitely”.
What can you do to survive the crisis?
There is certainly no magic wand that will end the cost of living crisis. But there are some cost-free strategies that could make a worthwhile difference to your household budget’s bottom line.
Look for cheaper insurances
Certain costs such as your mortgage or rent, council tax, and are simply immovable. But when it comes to annual insurance policies, such as for your home and car, make sure that you have compared costs from the wider market before auto-renewing with the same provider. Switching is quick and easy and could save hundreds of pounds over the course of the year.
Stop paying credit card interest
If you have credit card balances which you are unable to clear, paying interest (at a typical 20% APR, variable) is cripplingly expensive and, essentially, money straight down the drain. It’s possible to move balances from several card providers up to, say 90% or 95%, of your allocated credit limit, to a 0% balance transfer card.
While you’ll need a top credit score to be accepted, applying through an eligibility checker means you can view your chances before making an official application. This protects your credit report from visible searches which could put off subsequent lenders.If you find you are leaning on your credit card to pay for essentials, swap it for one that offers an interest-free period on purchases.
Some of these deals offer up to two years at 0% to the most credit-worthy applicants. So if you are forced to borrow, at least you can do it without paying interest.
Spring clean your current account
It’s worth going through your direct debits and standing orders to uncover any costs that you are forking out for unnecessarily – for example, subscriptions or services that you are no longer using.
Current account switching offers have also become particularly competitive, so find out what’s available.
Find out if you are entitled to any benefits
When you are satisfied that your regular outgoings are as lean as they can be, check to see if there are any income-related benefits or grants you could be missing out on. With a few key details from you and your partner, this is easy to do with a government-approved benefits and grants calculator such as Turn2Us.org.
If you are working and have a child aged between three and four, make sure you are collecting the Government’s 30 hours free childcare if you are eligible.
If the sums simply aren’t adding up, check to see if you qualify for The Household Support Fund. Available through local councils, it’s designed to offer financial support to help pay for essentials such as food, clothes and utilities. And the Government has doubled its funding from £500 million to £1 billion from April 2022.
Acceptance criteria varies between councils so check the relevant website for more details.
Make the most of free digital
Using your bank’s app, if you aren’t already, makes organising your finances a lot easier and means you can keep track of your spending whilst on the move.
You could go one step further with a budgeting app like Snoop, Yolt, or Money Dashboard. Using an open banking agreement, these apps allow you to view all of your accounts in one place which can provide greater transparency around the reality of your spending. If you opt for the basic version, many are also free.
Take advantage of supermarket discount/rewards
If you haven’t already, download your supermarket’s free loyalty app. As you’re very likely to have your phone with you, this makes it easy to scan and collect any points you’re entitled to. These can then be redeemed for a pounds-and-pence discount off the cost of your grocery shop.
Make positive lifestyle changes
Small changes to ingrained daily behaviours can also pay dividends over time. For example, making a commitment to use less energy. This could simply mean hanging out washing as the weather improves rather than using the tumble drier, turning the heating down by a degree or two, or switching off lights or radiators in rooms that you don’t use.
A good starting point when it comes to energy-saving is to understand which home appliances use the most energy compared to others. A simple and energy monitor is a clever and inexpensive tool that can help with this.
Outside of the home, changes such as seeking out free parking, and swapping a bought lunch and coffee for one you’ve pre-packed can mean that a day that might have otherwise cost £25, costs nothing.
Who can you contact for help?
According to a report from the Financial Conduct Authority (FCA), many financially struggling households are failing to seek available support due to lack of understanding or feelings of embarrassment.
However, if you are falling behind with household bills or repayments on debts, it’s crucial to contact the company in question and explain your situation. It may agree to reduce your payments for an agreed period of time, and/or set up a payment plan.
Energy companies are obliged by Ofgem, for example, to offer an affordable payment plan, as well as provide emergency credit to prepayment customers who can’t afford to top up.
Similarly, if you are experiencing difficulty with repayments on your mortgage, or with credit cards or loans, contact the provider to discuss your options. Reaching out for help will not impact your credit file.
Beware of scammers!
The growing demand for credit products, such as loans and credit cards, resulting from the cost of living crisis has presented particularly fertile ground for fraudsters, resulting in the proliferation of scams.
According to the 2021 Fraudscape Report published by fraud prevention firm Cifas, there were 360,000 fraud cases recorded on the National Fraud Database last year.
Identity fraud (such as taking out credit under someone else’s name) accounted for around two-thirds (63%) of this figure, and grew by 22% during the course of 2021.
The vast majority (91%) of fraud reported last year was carried out online, with people aged over 61 disproportionately affected accounting for 24% of cases.
It’s more vital than ever to take all the necessary precautions to protect yourself against fraudsters. Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Fraud can take a huge financial and mental toll on the victims and their families. Not everyone is able to recover the funds stolen and this can have lasting impact.”
If you are getting into debt
The ‘rising cost of living’ was the most commonly cited reason for people making contact with debt charity StepChange in July, with nearly one-in-five (18%) clients saying it was the underlying cause of their financial problems.
If you are worried about getting into debt, the following charities offer free, impartial advice. Never pay for advice around debt and never share details with companies contacting you by email or phone. Sadly, even debt advice is a target for scammers.
[ad_2]
Source link
