A leading thinktank has warned that UK households will face a hit of £1,200 next year as stalling wages and rising tax and energy bills cause a “cost of living catastrophe”
The Resolution Foundation has said that new Government measures that include the new social care levy on national insurance and the freezing of the personal income tax allowance, will combine with high inflation to make 2022 the “year of the squeeze”.
“The months ahead will not be easy for households who see their wages fall back as energy bills and taxes rise,” the report said. “As Omicron hopefully fades in the early months of 2022, we will come to realise the scale of the challenge posed to household finances.”
UK inflation has hit a ten-year high in November and it is likely to rise in 2022.
The largest factor has been energy bills which have risen thanks to the rising cost of wholesale gas prices and the bankruptcy of many cheaper gas suppliers.
The thinktanks calculations are based on an average rise of £600 in prices, which would take bills to about £1,900 a year. They said that an increase in the energy price cap in April will hav
e the biggest impact on low-income households as they spend more of their income on energy.
With wage growth stalling in 2021 and likely to continue falling in 2022, the thinktank forecasts a rise of 0.1% over the year, once inflation was taken into account. It also expects that by the end of 2024 wages will be £740 a year lower than the UK’s pre-pandemic pay growth predictions.
Torsten Bell, chief executive of the Resolution Foundation, said: “2022 will begin with Omicron at the forefront of everyone’s minds. But while the economic impact of this new wave is uncertain, it should at least be short-lived. Instead, 2022 will be defined as the ‘year of the squeeze’.
Of the £1,200 income hit in April, Bell said: “So large is this overnight cost-of-living catastrophe that it’s hard to see how the government avoids stepping in.
“Top of the government’s new year resolutions should be addressing April’s energy bills hike, particularly for the poorest households, who will be hardest hit by rising gas and electricity bills.”