The Daily Telegraph - Saturday - Money
Prepare for the biggest fall in living standards since the 1970s
Pensioners will spend a quarter of their state income on energy alone. Jessica Beard reports
Families are in for the biggest fall in disposable income since the Second World War, with households to be £3,203 worse off this year thanks to surging inflation and tax rises.
Britain’s cost of living crisis has intensified since the war in Ukraine sent oil and gas prices soaring and strangled an already stretched global supply chain.
Experts expect inflation to approach 9pc this year, dwarfing previous estimates, and remain above 7pc in 2023.
A shock £ 693 rise in energy bills next month is likely to be followed by an even larger jump in October. Consumers will have to grapple with sharp price increases across the board – from broadband and mobile phone bills to food prices – as inflation soars.
An estimated £71bn could be wiped off living standards in the most dramatic drop since records began, according to the Centre for Economics and Business Research, a consultancy. More than half of this will come as a consequence of Russia’s attack on Ukraine, it said. Inflation will peak at 8.7pc and be 4.1 percentage points higher than initially forecast by the end of the year, it said.
Britain faces the worst living standards crisis since the 1970s, the Resolution Foundation has warned. Mike Brewer from the think tank said families could experience greater price increases than the headline rates of 8pc. “Britain was already in the midst of a cost of living crunch before the conflict in Ukraine erupted,” he said.
A slew of tax rises will deliver an extra blow to take-home pay, with National Insurance contributions rising by more than 10pc in April. A worker earning the average salary of £31,077 will pay £268 more each year. Stealth freezes on taxfree allowances and benefit thresholds will also add billions to taxpayers’ bills.
The average household spends £30,655 a year, according to the Office for National Statistics. Inflation at 8.7pc would increase these outgoings by £2,667. Add the £536 NI bill for a couple on average salaries and this would reduce disposable income by £3,203, Telegraph Money analysis has found.
The Chancellor, Rishi Sunak, faces pressure to roll out more emergency measures to alleviate the strain during his spring statement on March 23.
More than two million extra households will be pushed into fuel poverty this April, totalling 6.5 million, according to the End Fuel Poverty Coalition, a campaign group. This could surpass 8.5 million by October if the energy price cap is raised to £3,000 a year, as projected.
Labour MP Stephen Timms, who chairs the work and pensions select committee, said the forecast was “stark” and the Government had done too little to support households. The former pensions minister said: “What has been done is helpful but not sufficient nor sustainable. The Chancellor has to act.”
More than 12 million pensioners will receive a pay cut worth hundreds of pounds, slashing their spending power. The state pension will rise by 3.1pc next month, falling far short of inflation, as the increase is based on the inflation figure from September 2021.
The sharp increase in energy prices is equivalent to more than four weeks’ worth of the average state pension, which is rising to £8,530 in April. This alone will account for almost a quarter of the yearly benefit, meaning retirees will spend three months of their annual income just on heating their homes.
Nigel Mills, a Tory MP, said it was “clear that the Government will have to act and give more support”. He said: “It’s inevitable. They will have to give some more support to pensioners in particular, whether that is an additional increase in the state pension or the winter fuel allowance. There is no law that says that it has to be increased once a year only, so it can be done.”
Pensioners will have to spend an additional £ 2,246 a year if inflation reaches 8.7pc. However, the state pension will increase by just £289 a year.