UK households will be £ 1,000 worse off next year, think tank warns

UK households will be £ 1,000 worse off next year, think tank warns

UK households will be worse off by £ 1,000 next year due to cost of living squeeze created by rising energy prices and labor and supply shortages caused by Covid and Brexit , warned a major think tank.

The Resolution Foundation said higher inflation levels will weigh on workers’ incomes next year, contributing to a severe blow to average household income in Britain as the government cuts benefits and increases Taxes.

He said average household disposable income, after adjusting for inflation, would be about 2% lower by the end of 2022 compared to forecasts made in March by the Office for Budget Responsibility (OBR), before soaring store prices and energy bills.

Although the OBR predicted that household disposable income would increase in 2022, the Resolution Foundation said the spike in inflation would mean households would have £ 1,000 less than initially expected.

“Higher inflation reduces the amount of goods and services that households can afford, eroding the real value of income,” he said.

The warning comes amid growing concern about the impact of the rising cost of living this fall, as soaring wholesale gas and electricity prices trickle down to energy bills and the price of a weekly store increases.

In an intervention ahead of Rishi Sunak’s post-lockdown budget next week, the Resolution Foundation said that in addition to the inflation hit, many households are also expected to face cuts in universal credit, while workers and companies must budget for the planned national insurance. tax increases.

The government cutting universal credit by £ 20 per week from early October will cost these households £ 1,040 per year, including millions of working families, in the biggest overnight reduction in social security benefits never recorded.

Warning the Chancellor that a “cost of living crisis” was brewing due to the combined impact of inflation, tax hikes and cuts, the think tank said: “In addition to ” £ 13bn raid on household income resulting from increase in NICs [National Insurance contributions], and deep cuts in universal credit, there will be major headwinds for the purchasing power of families in the months to come.

Official figures show that inflation, as measured by the Consumer Price Index, experienced its biggest monthly jump on record in August, reaching an annual rate of 3.2%, the highest rate in almost a decade after a sharp rise in the cost of energy, food and drink.

The Bank of England has warned that rising household energy bills will cause inflation to spike above 4% this winter, with the cost of living gauge set to remain at high levels until at least summer before gradually fading.

Sunak warned that the sharp jump is a key risk closely watched by the Treasury for the potential impact it could have on public finances, with the cost of servicing the national debt linked to inflation and interest rates. ‘interest.

The Resolution Foundation said the Chancellor was on track for an improvement in government finances worth around £ 30bn next year, compared to previous forecasts for the budget deficit. However, he said that figure was lower than some economists assumed because rising inflation pushed up borrowing costs.

The think tank also warned that Sunak has little room for maneuver in the coming years due to huge uncertainties over the economic outlook.

Britain’s economy is expected to grow 7.5% this year, the fastest peacetime annual growth rate for almost a century, after the sharpest contraction during the same period in 2020.

However, growth slowed to just 0.3% in July and August, as fears grow about rising inflation and a possible need to raise interest rates to compensate.

James Smith, research director at the Resolution Foundation, said: “The budget backdrop will be a strong recovery from the pandemic which is likely to be hampered by rising inflation and economic disruptions that will compress at the both the Chancellor’s loan manna and family budgets.

“The decisions Rishi Sunak takes next Wednesday will help define the rest of parliament and the type of chancellor that will be remembered.

“But amid long-term and defining announcements, he must not forget the cost-of-living crisis facing families across the country right now. “

The Treasury said: ‘We are supporting people with the cost of living, including through a new £ 500million support fund to help vulnerable households, cap energy prices and support for energy bills during the winter.

“Our Jobs Plan is also helping people across the country find great jobs and advance in their careers. “


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