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Households bills and taxes rise

 Household budgets face a £1,200 hit next spring because of higher energy bills, tax rises and stagnant wages, a think tank has warned.

Today, the Resolution Foundation said that 2022 would be the “year of the squeeze” on people’s finances. Its quarterly Labour Market Outlook, which projects how workers and families will be affected by economic shifts, says the UK faces a “cost of living catastrophe” in April.

The cap on energy bills will rise that month due to soaring wholesale gas prices, with analysts predicting that households could pay double what they did 12 months ago. The foundation calculated that the typical energy bill would rise by about £600 a year.

Ministers are under growing pressure to shield struggling households from soaring energy costs, with suggestions including cutting VAT on energy bills and introducing subsidies.

Tax rises announced in the government’s last budget will also affect in April. The report says that the combined impact of a freeze on income tax thresholds and a 1.25 percentage point rise in personal, national insurance contributions will cost the average household £600 a year. In addition, higher energy bills will disproportionately affect poorer households, which spend a more significant part of their income on gas and electricity. The think tank predicted that the share of income spent on energy bills among the poorest households would rise from 8.5 per cent to 12 per cent, three times the share paid by the wealthiest households.

Higher tax bills will disproportionately affect wealthier households. The national insurance rise alone will cost those in the top half of the income distribution £750 annually.

Households will also be affected by inflation, which is set to peak at 6 per cent in the spring, its highest level since 1992.

The think tank said that real wage growth was flat in October and is unlikely to start growing again until the end of 2022. As a result, real wages are on course to rise just 0.1 per cent for the following year.

The foundation said that the government should subsidise energy costs and move green levies on energy bills to general taxation. Torsten Bell, its chief executive, said: “The overall picture is likely to be one of the prices surging and pay packets stagnating. The peak of the squeeze will be in April, as families face a £1,200 income hit from soaring energy bills and tax rises.”

Kwasi Kwarteng, the business secretary, met energy bosses on Monday to discuss measures to deal with the crisis. Companies are pushing for tax cuts and the relaxation of green levies to drive down costs. Wholesale energy prices have reached new highs due to greater demand caused by cold weather, low gas exports from Russia and nuclear power plant shutdowns in France.

The industry has accused ministers of dragging their feet. This week, Stephen Fitzpatrick, the founder of Ovo Energy, said that there had been “a shocking lack of urgency”.

Estimates sent by Ofgem, the energy regulator, to the government said that the price cap was set to rise by 40 per cent in April.

On standard tariffs, energy bills for 11 million households and four million households with prepayment meters are limited by the cap. This year Ofgem authorised a 12 per cent rise and will announce the next level in February.

The government said: “We know people are facing pressure, so we’re taking £4.2 billion of action.”

Summarised www.sba.tax

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