Cost Of Living Crisis: First Payments Made To Lowest-Income Households

The first of the Government’s cost of living payments will begin to be paid today (14 July) into the bank accounts of the UK’s lowest-income households.

Eight million households in receipt of benefits such as Universal Credit, Jobseeker’s Allowance and Child Tax Credit, will be paid the first £326 of the total £650 payment. 

Announced back in May by the then-Chancellor Rishi Sunak, the windfall is designed to alleviate soaring costs such as energy, fuel and food.

With the exception of households claiming tax credits, who will receive their first payment in the autumn, the £326 will hit most accounts between 14 and until 31 July. However, delays may occur in ‘unique or complex’ circumstances, according to a spokesperson for the Government’s Department for Work and Pensions.

The second cost of living payment will be made in the autumn, although the exact date has yet to be confirmed. For those in receipt of tax credits, the second payment will be made in winter.

What is the cost of living crisis?

Struggling to make ends meet when it comes to the everyday cost of living is nothing new for vast swathes of the UK population. But, as the price of powering your home, filling up the car and paying for the food shop continues to soar, record numbers are now sharing in the experience – while those who were already battling are being pushed further into financial hardship, and even poverty.

The Bank of England’s Financial Stability Report for July found that day-to-day living costs have risen sharply in the UK and across the rest of the world, while the economic outlook for growth has worsened.

The Bank warned that households with high levels of debt will find themselves ‘most exposed’ to further price rises of essential goods such as food and energy – especially if costs continue to climb quicker than expected, or it becomes more difficult to borrow.

The latest Office for National Statistics (ONS) report into the rising cost of living found that nearly a quarter (23%) of adults reported that it was already ‘very difficult’ or ‘difficult’ to pay their regular household bills compared to 12 months before. And the situation will have almost certainly deteriorated further since its publication in April.

Indeed, the latest inflation figures which showed the Consumer Prices Index (CPI) hit 9.1% in the year to May – the highest level for 40 years – indicate no end in sight to the cost of living crisis.

What bills have gone up?

It’s difficult to think of any household bill or daily cost that hasn’t gone up in recent months. And households will barely need reminding of those that have. But here’s a more detailed summary, including reasons behind the hikes and – most importantly – if there’s anything you can do about it.

Energy

While the Government has announced a package of financial support measures (more on this later), the biggest worry for millions of UK households is still the cost of their energy bills.

Around 43% of those responsible for paying for energy reported that it was ‘very’ or ‘somewhat difficult’ to afford their energy bills in March 2022, according to the latest ONS cost of living report. Again, as fresh data emerges, this number is almost certain to rise.

Costs soared with the arrival of the new energy price cap level on 1 April. The cap, set by market regulator Ofgem, has meant that a typical UK household* is paying a staggering £1,971 a year for their energy bills. That’s a rise of 54% compared to the previous cap of £1,277 (if you’re on a prepayment meter, the cap rises from £1,309 to £2,017 a year*).

And cost predictions for the next cap level, which takes effect on 1 October, are worsening as the date draws nearer. On 8 July, energy analyst Cornwall Insight amended its prediction of what Ofgem’s energy price cap will rise to this autumn, to £3,244. The number is significantly higher that the £2,980 it suggested only last month.

And the firm says the price cap could rise to £3,363 in January 2023, when the frequency of reviews will shift to every three months to allow greater responsiveness to movements in wholesale energy prices. Cornwall Insight had previously forecast a level of £3,003 at that point.

But why has energy become so expensive? Wholesale gas prices, which had been climbing steadily during 2021 due to factors ranging from a unseasonably cold winter of 202/2021 and lack of gas storage facilities, have been exacerbated by the conflict between Russia and Ukraine – Russia being a key international gas supplier. 

And while, of course, it’s incomparable to the suffering of millions of Ukrainians, it’s made it cripplingly expensive for us in the UK to heat our homes. 

It’s currently not possible to switch to a cheaper fixed rate tariff (although deals may be available for some existing customers at the level of the current cap) but we have outlined the support that is available if you simply can’t keep up with the rising cost of your energy bills.

*Annual cost for a household with average energy consumption on a ‘dual fuel’ gas and electricity standard variable rate tariff (SVT), paying by direct debit. The cap limits the price companies can charge per unit of gas, electricity and a daily standing charge – actual bills will be determined by consumption.

Petrol and diesel

Rising oil prices have also made filling up the car eye-wateringly expensive. For UK drivers, the average cost of diesel and unleaded petrol on 5 July 2022 stood at 198.91p and 191.36p per litre respectively, according to the RAC’s Fuel Watch.

In his March Spring Statement, the then-Chancellor Rishi Sunak announced a 5p-a-litre cut in fuel duty for a period of 12 months, which took effect from 23 March this year. But while this shaved around £3 off the cost of filling the petrol tank of a typical 55-litre family car, it has failed to stem soaring prices at the pumps. 

Pressure is now on the new Chancellor, Nadhim Zahawi to ease the problem, as well as investigate into ‘rocket and feather’ price movements which refers to prices soaring immediately when wholesale costs increase, but falling much more slowly when the reverse happens.

Groceries

Food prices have also been steadily climbing due to factors ranging from changing global weather to distribution issues due to driver shortages.  A pint of milk cost 52p in May 2022, compared to 42p in May 2021, according to the Office for National Statistics.

Even basic-brand food shopping is getting dearer. Research from the ONS published in May found that the cost of budget supermarket items increased between 6% and 7% overall in the year to April which was broadly in line with the wider inflation rate for ‘food and non-alcoholic beverages’ at 6.7%.

However, the experimental research – designed to counter the fact that the ONS ‘basket of goods’ on which inflation is calculated focuses on more expensive items such as clothing, footwear and entertainment – found stark differences between individual food budget food products. For example, the cost of pasta – a staple for many families – has risen by a massive 50% since April 2021.

Inflation, interest rates…

The rising costs of everyday items has pushed inflation to the highest levels in four decades. The Consumer Prices Index stood at 9.1% in the 12 months to May – more than four times the Government’s 2% target. And it’s expected to reach 11% by autumn when the next round of energy price rises take effect.

The Bank uses interest rate hikes to counter rising inflation. It has raised interest rates five times since December to its current level of 1.25%, with the next decision on 4 August.

…and the cost of mortgages

Interest rate hikes have an almost immediate effect on homeowners paying their lenders’ standard variable rates (SVRs) or Bank rate-linked mortgage deals. 

For those sheltered under a fixed-rate deal, costs will be higher when they come to remortgage, while first-time buyers – if they are able to raise a deposit in an environment of soaring house prices in the first place – will face the same higher costs. 

It’s worth noting that most lenders permit you to reserve your mortgage rate between three and six months in advance. This means that, if you are remortgaging your current home, you can effectively take advantage of ‘today’s mortgage rates tomorrow’. 

The traditional price gap between short and longer-term fixed rate mortgages is also closing, with little difference in interest now between the cost of a 2-year and 10-year deal.

You can find out what rate you may be able to get for your circumstances with our live mortgage tables, powered by our mortgage broker partner, Trussle.

Council Tax

In April 2022, Council Tax was hiked for millions of UK households. The average Band D council tax bill set by local authorities in England for 2022-23 is now an annual £1,966, which marks an increase of £67 or 3.5% on last year’s figure of £1,898.

However, as part of the Government’s wider package of support (more on this below), every household in Bands A to D in England will receive a £150 council tax rebate in 2022/23 which will not need to be repaid. 

The payments will be made automatically if you pay your bill by direct debit, starting from April 2022 when the rises kick in. If you don’t pay by direct debit, you will need to apply for your rebate.

Council Tax payments should be considered as a priority, as you can be taken to court by your local authority for failing to pay. Certain households qualify for concessions, such as a 25% single person’s discount if you live alone.

You can find out more with our Council Tax Q&A, as well as what to do if you are unable to meet the cost.

Home entertainment

Netflix customers have been feeling the effects of price hikes first announced back in March.

The cost of a basic Netflix package has risen from £5.99 to £6.99 a month, while a standard package has increased from £9.99 to £10.99 a month and its premium package from £13.99 to £15.99 a month. 

Price hikes are being rolled out gradually with 30 days’ notice and were necessary to ‘sustain its content output’ and compete with rivals including Disney+ and Amazon Prime, according to the streaming giant.

Mobile and broadband

Broadband is another essential household cost that’s on the up, with customers of BT and EE, Plusnet and TalkTalk, among others, all hit with higher prices since the spring.

This is due to a clause that allows providers to hike costs once a year mid-contract by an amount linked to inflation in the preceding December.

It’s the same story with customers of mobile networks such as BT and EE, Three and Vodafone, whose bills will also rise due to inflation-linked mid-contract price hikes.

Consumer borrowing

With just about every household bill you can think of climbing, the fact that consumer debt is increasing is worrying and inevitable in equal measure.  According to the Bank of England’s latest Money and Credit report, UK consumers borrowed an additional £1.4 billion in credit in April. It was split equally between credit cards and other forms of consumer credit, such as car dealership finance and personal loans.

If you have credit card debt, make it a number one priority to transfer it to a 0% balance transfer deal (bear in mind that most charge a fee). If this is not possible, perhaps due to your credit score or an insufficient new credit limit, always try to pay more than the minimum payment required by the provider. 

If the rising cost of living has cornered you into using a credit card just to pay for essentials, deals are available that offer an initial spending period interest-free. While this will offer breathing space, always ensure you can pay back your debt during this 0% period.

Cracks already showing…

However, despite the Government’s sticking plasters, the fallout of the cost of living crisis is already evident.

According to the latest government statistics, the number of individual insolvencies registered in the first quarter of this year (32,305), was 17% higher than the number registered in the previous quarter, and 14% higher compared to the same quarter in 2021.

Individual voluntary arrangements (IVAs) were the most common form of individual insolvencies between January and March 2022 accounting for 74% of cases. They were followed by Debt Relief Orders (21% of cases) and bankruptcies (5% of cases).

What can you do to survive the crisis?

There is certainly no magic wand that will end the cost of living crisis. But there are some cost-free strategies that could make a worthwhile difference to your household budget’s bottom line.

Look for cheaper insurances

Certain costs such as your mortgage or rent, council tax, and are simply immovable. But when it comes to annual insurance policies, such as for your home and car, make sure that you have compared costs from the wider market before auto-renewing with the same provider. Switching is quick and easy and could save hundreds of pounds over the course of the year. 

Find out if you can fix energy

Some energy customers may be able to fix in with their existing supplier when their current fix ends. However, the cost is unlikely to be cheaper than the prevailing standard variable tariff (SVR) which is charged at, or near, the price cap. Fixed rate energy deals are not currently available on comparison websites.

Stop paying credit card interest

 If you have credit card balances which you are unable to clear, paying interest (at a typical 20% APR, variable) is cripplingly expensive and, essentially, money straight down the drain. It’s possible to move balances from several card providers up to, say 90% or 95%, of your allocated credit limit, to a 0% balance transfer card. 

While you’ll need a top credit score to be accepted, applying through an eligibility checker means you can view your chances before making an official application. This protects your credit report from visible searches which could put off subsequent lenders.If you find you are leaning on your credit card to pay for essentials, swap it for one that offers an interest-free period on purchases.

Some of these deals offer up to two years at 0% to the most credit-worthy applicants. So if you are forced to borrow, at least you can do it without paying interest.

Spring clean your current account

It’s worth going through your direct debits and standing orders to uncover any costs that you are forking out for unnecessarily – for example, subscriptions or services that you are no longer using. 

Find out if you are entitled to any benefits

When you are satisfied that your regular outgoings are as lean as they can be, check to see if there are any income-related benefits or grants you could be missing out on. With a few key details from you and your partner, this is easy to do with a government-approved benefits and grants calculator such as Turn2Us.org.

If you are working and have a child aged between three and four, make sure you are collecting the Government’s 30 hours free childcare if you are eligible. 

If the sums simply aren’t adding up, check to see if you qualify for The Household Support Fund. Available through local councils, it’s designed to offer financial support to help pay for essentials such as food, clothes and utilities. And the Government has doubled its funding from £500 million to £1 billion from April 2022.

Acceptance criteria varies between councils so check the relevant website for more details.  

Make the most of free digital

Using your bank’s app, if you aren’t already, makes organising your finances a lot easier and means you can keep track of your spending whilst on the move.

You could go one step further with a budgeting app like Snoop, Yolt, or Money Dashboard. Using an open banking agreement, these apps allow you to view all of your accounts in one place which can provide greater transparency around the reality of your spending. If you opt for the basic version, many are also free.

Take advantage of supermarket discount/rewards

If you haven’t already, download your supermarket’s free loyalty app. As you’re very likely to have your phone with you, this makes it easy to scan and collect any points you’re entitled to. These can then be redeemed for a pounds-and-pence discount off the cost of your grocery shop.

Make positive lifestyle changes

Small changes to ingrained daily behaviours can also pay dividends over time. For example, making a commitment to use less energy. This could simply mean hanging out washing as the weather improves rather than using the tumble drier, turning the heating down by a degree or two, or switching off lights or radiators in rooms that you don’t use.

A good starting point when it comes to energy-saving is to understand which home appliances use the most energy compared to others. A simple and energy monitor is a clever and inexpensive tool that can help with this.

Outside of the home, changes such as seeking out free parking, and swapping a bought lunch and coffee for one you’ve pre-packed can mean that a day that might have otherwise cost £25, costs nothing.

Beware of scammers!

The growing demand for credit products, such as loans and credit cards, resulting from the cost of living crisis has presented particularly fertile ground for fraudsters.

According to the 2021 Fraudscape Report published by fraud prevention firm Cifas, there were 360,000 fraud cases recorded on the National Fraud Database last year.

Identity fraud (such as taking out credit under someone else’s name) accounted for around two-thirds (63%) of this figure, and grew by 22% during the course of 2021.

The vast majority (91%) of fraud reported last year was carried out online, with people aged over 61 disproportionately affected accounting for 24% of cases.

It’s more vital than ever to take all the necessary precautions to protect yourself against fraudsters. Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Fraud can take a huge financial and mental toll on the victims and their families. Not everyone is able to recover the funds stolen and this can have lasting impact.”