Energy Price Hikes and the Cost of Living
22nd October 2021
The average cost of living in the UK is on the rise. From the energy price increase to the food in our fridges, we’re set to be paying more this winter for day-to-day essentials. So why is this all happening right now? More importantly, what can we do to protect ourselves?
Average cost of living
When we talk about the cost of living in the UK, we mean the basic payments we’re making for things like food, rent and warmth. There’s a combination of forces at work right now that’s pushing those costs through the roof for many of us at the worst possible time.
As for what those forces actually are, there are several major culprits at work. The ongoing COVID-19 pandemic is often called out as one of the main suspects, obviously enough. There’s also the additional strain of Brexit, the shortage of HGV drivers and the rising price of energy to contend with.
At the same time, we’ve got the withdrawal of the pandemic support offered to businesses and families, the end of the £20 Universal Credit uplift, a hike in National Insurance and rising inflation all on our plates at once. With so many of us already struggling, it’s looking like a harsh winter in the UK this year.
When inflation goes up, the cash in your wallet doesn’t go as far as it used to. The tax-free Personal Allowance is frozen until 2026, and National Insurance rates are going up. However, since interest rates are at basically an all-time low right now, borrowers and mortgage holders have a little insulation. Savers, on the other hand, aren’t faring quite so well, since the interest they’re getting won’t be able to keep up with rising costs.
So one way or another, household cash getting squeezed just as prices are being forced up. As Bridget Phillipson, the Shadow Chief Secretary to the Treasury, puts it:
“Working families face a sudden squeeze on living standards on a scale not seen for a generation. Incomes are coming down, prices are going up, especially energy prices, taxes are going up, rents are going up, childcare costs are going up, fuel costs are going up, rail fares are up.”
Which living expenses are expected to rise?
The biggest headlines around the UK’s cost of living crisis at the moment have been about the energy price increase. An estimated 15 million UK households are currently looking at energy cost hikes of 12% or more. Some energy suppliers are even going under altogether because of rising gas prices, pushing their customers onto new tariffs at short notice. Meanwhile, the price cap set by Ofgem has just been raised to £139, and could well go higher in the coming months.
Energy prices aren’t the only costs on the way up, of course. Shortages are ramping up food prices, transport costs and a whole range of other necessities. That counts for businesses as well as households, meaning companies are faced with a decision over how much of the hikes they need to be passing on to their customers.
How to protect yourself in a cost of living crisis
At RIFT, we always talk about how it’s often better to get rid of debts than to save cash. In the long term, your debts will always mount up faster than your savings can grow. Wherever possible, it’s better to pay down what you owe as quickly as you can manage.
Just as importantly, you’ve got to look at the costs you can control. For many of us, that’s going to mean checking for better deals on things like energy, and cutting back on unneeded subscription payments to services we’re not using. Honestly, these are all things you should be looking into anyway – but right now these little cost-cutting exercises could be more valuable than ever.
The point is to be sure you’re making the best use of the money you have – and that means claiming your tax refunds. However much HMRC owes you for everyday necessities like work travel, that cash is doing you no good while it’s sitting in the taxman’s pocket. A tax refund can easily wipe out a nasty bill, put food on your family’s table for months or take a big bite out of a nagging debt. It’s your money HMRC’s sitting on, and it’s down to you to claim it back.
Talk to the UK’s leading refund experts about getting back what the taxman owes you. Call RIFT or check what you're owed online.