MILLIONS of families are facing a “year of the squeeze” in 2022, a think tank has warned reports the BBC.
The Resolution Foundation predicts higher energy bills, stagnant wages and tax rises could leave households with a £1,200 a year hit to their incomes.
Its report highlights the rise in the energy price cap and National Insurance contributions in April.
The government says it has put £4.2bn in place to support families.
According to the Resolution Foundation, millions of families are facing a “cost-of-living catastrophe” next year.
It says a 1.25% increase in National Insurance contributions will cost the average household £600 a year while the higher energy bills cap is expected to add an additional £500 to spending. Both will come into force in April.
The impact of the failure of many firms in the energy sector would see another £100 added to gas and electricity bills. Customers of collapsed energy companies have been shifted to new suppliers but it means they could pay a different – and potentially more expensive – tariff than their previous energy deal.
In recent months, wholesale gas prices have risen to unprecedented levels. Last week, they hit a new record of 450p per therm, which experts think could take average annual gas bills to about £2,000 next year.
Earlier this week, business secretary Kwasi Kwarteng met bosses from the UK’s energy companies and the industry’s regulator Ofgem “to discuss the ongoing effects of record high global gas prices on the sector”.
Labour has suggested the government immediately remove VAT from household energy bills over winter to help households.
Stephen Fitzpatrick, chief executive of Ovo Energy, who attended the virtual meeting on Monday, also suggested the government should remove “some of the environmental social policy costs that we have seen increase over the years”.
Meanwhile, the cost of living in the UK surged by 5.1% in the 12 months to November – the highest increase in 10 years – Office for National Statistics data showed.
Inflation is set to peak at 6% in the spring, according to the Bank of England, and the Resolution Foundation warned that real wage growth, which was flat in October, “almost certainly started falling last month and is unlikely to start growing again until the final quarter of 2022”.
Resolution Foundation chief executive Torsten Bell, said: “The overall picture is likely to be one of prices surging and pay packets stagnating.”
He told the BBC that the UK employment market had shown signs of resilience during the pandemic following the end of the government’s furlough scheme on 30 September, with the unemployment rate close to pre-Covid levels at 4.2%.
He also highlighted that the national living wage will rise in April, by 6.6%, which he said means “the lowest earners will be protected from some of these price rises we are seeing”.
However, Mr Bell said that while some areas of the workforce have seen sharp wage rises – such as in-demand HGV drivers – “overall the story is prices going up for everybody while wages go up for some”.
Mr Bell said Chancellor Rishi Sunak could face increased pressure to take action to alleviate his economic plan set out in the Autumn Budget.
The report by the foundation says that poorer families are going to be the worse hit by the “year of the squeeze”, as they spend a higher proportion of their income on energy.
A government spokesman said its help included reducing the Universal Credit taper, as well as measures to assist with bills, including cold weather payments and a freeze in alcohol and fuel duty.