In Depth

Cost of living crisis: five changes that will hit UK households in 2022

Labour warns of ‘rising bills and ballooning prices’

Boris Johnson is facing pressure from all sides to take swift action to curb the growing cost of living.

In the first Prime Minister’s Questions of the year, Labour’s deputy leader Angela Rayner yesterday urged the prime minister to “get a grip” as millions of people face “rising bills and ballooning prices”.

Cabinet tensions also “erupted” behind the scenes as Jacob Rees-Mogg urged Johnson to scrap the £12bn tax rise due this spring, reported the Financial Times.

House of Commons leader Rees-Mogg has “put himself at the head of a growing Tory cost of living revolt”, said the paper, with the crisis set to “peak in April”.

The cost of living is “about to shape our politics in a way that it hasn’t for decades”, wrote Aditya Chakrabortty in The Guardian, “setting the terms of trade at Westminster and possibly deciding Boris Johnson’s future”.

Here are five key changes set to impact UK households in the coming months.

Tax rises

A health and social care levy of 1.25% is due to be added to employees’ National Insurance contributions from April. The additional £12bn expected to be raised each year will initially go towards easing pressure on the NHS and then be pumped into the social care system.

Chancellor Rishi Sunak has said that he wants to cut taxes before the next election, but the National Insurance hike puts the country on course for its “highest overall tax burden since 1950”, said the FT. Rees-Mogg’s latest call for the government to shelve the plans “reflects unease among Tory MPs about high levels of tax”, according to the paper, but Sunak looks unlikely to budge.

Inflation

The Bank of England has predicted that inflation will soar to 6% by this spring. During 2021, consumers wanted to spend more after Covid restrictions eased, but “the people selling some of these things have had problems getting enough of them”, the Bank explained. “This block in the supply caused prices to rise.”

“You may not notice low levels of inflation from month to month, but in the long term, these price rises can have a big impact on how much you can buy with your money,” added the BBC.

Energy bills

Inflation is also being fuelled by demand for oil and gas, which is “pushing up energy prices worldwide”, said the BBC.

A price cap for the most expensive gas and electricity tariffs was introduced in the UK in January 2019 in a bid to ensure customers paid a fair price. But the cap is likely to rise dramatically in the next six-monthly review, due to be announced in February and introduced on 1 April. 

Johnson told MPs yesterday that the government’s Warm Home Discount “supports 2.2 million people to the tune of £140 a week” and that “pensioners are supported with £300 through the Winter Fuel Payment”. However, it was later pointed out that the Warm Home Discount is a one-off payment of £140 for the winter.

And Money Saving Expert founder Martin Lewis has warned that the price cap increase could mean a “seismic” hike for energy bills. “We are going to see a minimum 50% increase in energy prices in the system and that is unsustainable for many,” he told the PA news agency.

Travel costs

Petrol and diesel prices hit their highest level since 2012 last October and continue to remain high. The RAC predicted that petrol could reach 150p a litre this year if oil prices increase further.

Rail fares are due to rise as well, by 3.8% in March – the “biggest increase for almost a decade”, said Sky News

Wages increase

On a more positive note, state pensions will increase in April by 3.1%, which equates to “an annual boost of up to £289”, Which? reported, and the minimum wages for all ages will rise too.

In more good news, job markets seem steady and “wages, notionally, have been rising fast”, said The Spectator this week. But “a fresh generation is about to learn that wage rises are of little help when prices are rising faster”, the magazine added.

And with voters set to “find their incomes shrinking in real terms”, a government that “owes its existence to a newfound ability to reach relatively low-income voters is fast approaching a crisis which could turn out to be terminal”.

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