How to beat a winter of financial discontent

Costs are going up, support is dropping away. Here’s how to make sure your finances survive the spending squeeze

Kate Hughes
Money Editor
Wednesday 29 September 2021 07:00
Low income families typically had £95 in savings this winter compared to £136 the same period last year
Low income families typically had £95 in savings this winter compared to £136 the same period last year

Families across the country will see their income drop over the next six month as rising prices and falling support combine to shave precious pounds off their available cash.

From this week, the energy price cap – the limit set on household energy costs – will increase, followed by a further projected 19 per cent increase next April, according to warnings from think tank the Resolution Foundation over the weekend.

Meanwhile, the consumer prices index (CPI) measure of inflation is widely anticipated to hit 4 per cent, its highest rate in more than a decade over the winter.

We already know about the £20 cut to universal credit coming in next week and set to affect almost 6 million people, as well as the 1.25 per cent health and social levy due to start reducing all our pay cheques next April in a bid to help get us out of an almighty care funding gap.

Sure, there’s a 37p increase in the national living wage also kicking in next spring, and the inflation rate will see a reasonable benefits uprating at the same time. But we’ve got to get through a cold, dark, energy dependent winter before then, just as those bills are set to soar.

Real world bills

The answer on most people’s lips is wage growth, but in real life, those increases are likely to turn negative for many workers when inflation hits 4 per cent.

Karl Handscomb, senior economist at the Resolution Foundation, said: “Britain is about to enter a tight cost of living squeeze over the next six months as high inflation and rising energy bills collide with the Government’s decision to cut benefits and raise taxes.

“Low-and-middle-income families will face the tightest squeeze. Many drivers of high inflation should be short-lived, but that will be of little comfort to families struggling over the coming weeks and months.”

The combined impact of all this could mean that from 1 October, millions of families are likely to be more than £100 worse off every month, data from Royal London suggests.

That includes around 15 million households that will be hit by the impact of energy costs, rising to a typical £1,277 for households on a default dual fuel tariff or £1,309 for the country’s 4 million prepayment customers.

And with inflation at 4 per cent, the average household that spent £277 a month on food expenses last year will pay £288 for exactly the same shopping basket in the future.

“This means a very bleak winter for the most financially insecure among us and urgent action is certainly needed from the government to safeguard people against financial crisis,” warns Thomas Lawson, chief executive of financial hardship charity Turn2us.

“We also urge everyone to check what support they are eligible for and contact their utility suppliers if they know they are going to struggle to pay upcoming bills.”

Bring in the budget

Elsewhere, we’re being urged to get on top of budgeting.

Start by working out how much money you will need to cover your monthly essentials such as your rent or mortgage, utility bills, council tax and any other debts, such as credit cards and/or personal loans, Royal London suggests.

Once you’ve done this, you should have a clearer picture of how much money you have to spend on areas such as your weekly shop.

It can be complicated to work out what state benefits you are entitled to, but charities like Turn2Us have a benefits calculator to check your entitlement to means-tested benefits.

And while energy prices are rising across the board, it is still undoubtedly worth shopping around for better deals on bills you can’t avoid including energy, broadband, car and home insurance.

Normally, you would be able to save money on energy bills by switching from the standard variable tariff to a better deal. However, volatile energy pricing means that the former may be the cheapest option at the moment. It’s worth double checking with your provider that you are on the best tariff available to you. They are obliged to tell you if you could save money with a different tariff.

Broadband tends to be more expensive for those who are “out of contract”. This applies to a staggering 20 million customers according to Ofcom, so broadband should be top of your switch list, especially as it just got easier to do so.

This week the regulator released plans to allow all home broadband users, including cable and full fibre customers, to contact their new company to switch, with no need to speak to their current provider before making the move, though providers have until April 2023 to implement this “one-touch switch”.

If you don’t think you will be able to afford to pay your council tax because you’re now on a lower income or claiming benefits, you might be eligible for a council tax reduction. What you get will depend on where you live, your circumstances, your household income and whether you have children or other dependents living with you.

Elsewhere, look for zombie subscriptions on bank statements that you keep paying out for but never use. Ranging from gym membership to unused apps, survey after survey suggests the average household loses up to £300 a year this way.

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