Lowest income families to be hit hardest by rising living cost crisis

Soaring energy bills and national insurance hike add to mounting pressure on the worst-off

BRITAIN’S mounting cost of living crisis will set households back more than £300 each in soaring energy bills next year as the nation’s poorest families take the biggest hit, new forecasts show.

Figures from the Centre for Economics and Business Research underline the prospect of months of financial pressure for consumers, as the Bank of England warns of inflation surging to decade highs of above 4 per cent and ministers ready for tax raids on millions from next April.

The regulator Ofgem’s planned 12 per cent rise in the energy price cap next month for 15 million standard variable tariff customers – as well as a likely further jump of at least 14 per cent next April after record gas prices – is likely to slice around £315 a year or 2.5 per cent off the average household’s disposable income, the economic consultancy said. Its forecasts for The Sunday Tele

graph also show that the lowest income households are expected to pay an extra £258 a year, but a much bigger share of disposable income at 16 per cent. While the richest fifth will pay more at £368, the rise accounts for less than 1 per cent of their disposable incomes.

Previous CEBR research also shows that more than half of the bottom fifth are on variable tariffs rather than fixedrate deals, leaving them more exposed to immediate price hikes.

The rising energy bills come weeks after the Treasury launched a £36 billion tax raid on businesses and households to pay for the NHS and social care. Council tax bills will also rise from April, while workers will also pay more as tax bands are frozen.

Sam Miley, an economist at CEBR, said: “It is clear that the rise in energy prices is set to impact the poorest households disproportionately, given that essential spending – such as utilities and food – makes up a greater proportion of their income.

“Combining this price growth with some expected downward pressure on incomes – reflecting the upcoming termination of the furlough scheme, the reversal of the universal credit uplift and the hike to national insurance – further adds to the pressure that the worst-off are set to face.”

The upward pressure on gas and electricity bills has triggered calls from senior Conservatives to respond by slashing VAT on energy bills from 5 per cent to zero – a move previously banned by European Union rules. MP Robert Halfon, a campaigner for lower fuel prices, said last year’s temporary VAT cut for the hospitality sector in the Covid crisis set a precedent.

“A real advantage of leaving the EU is that we now control VAT rates, which wasn’t possible in the past. It will make a real difference: it is around £60 per year on average and it is more as the price goes up.”

Mr Halfon added that cutting tax “is a much better way ” of helping struggling families. He said: “They can at least cut VAT for the disadvantaged and lower paid families.”

Darren Jones, chairman of the Business, Energy and Industrial Strategy select committee, said: “The Business Secretary has promised to protect consumers, but the Chancellor hasn’t given him the money to do that.”

George Buckley, chief European economist at financial services group Nomura, warned that the energy crisis would weigh on the UK’s recovery next year despite almost £200 billion in savings built up by households since the beginning of 2020.

“The problem is that not everyone who is going to be faced with very high energy bills are going to be the people who have saved a load of money,” he warned.

Financial markets are betting on an interest rate rise from the Bank of England as soon as February.

But the threat of 1970s-style “stagflation” – slow growth alongside high inflation – looms large as Britain is unlikely to match even Threadneedle Street’s lowered growth expectations for the current quarter at 2.1 per cent.