Families set to be hit by biggest cost of living squeeze since records began

The challenges facing family and firms finances have been laid bare after a series of economic announcements.

Experts warn that as well as the bill and rate hikes, people will also be hit by 'hidden' rises, as businesses pass on their cost increases to the public.

It comes after a dramatic day of developments relating to rising living costs. These included:

• Average energy bills will rise by £693 in April, when the National Insurance hike will see millions paying higher tax bills.
• A further 10pc energy price cap rise is expected in October.
• The Bank of England increases base rate to 0.5pc, which experts predict will lead to mortgage rates rise.
• Experts forecast that inflation will soar to 7.25pc in April.
• Warnings that incomes will fall by 2pc this year - representing the biggest drop in take-home pay since records began in 1990.

To help families cope with the rising cost of living, on Thursday chancellor Rishi Sunak unveiled a £350 package of financial support.

Households will receive a £150 discount on their council tax bill in April if they are within bands A-D.

Everyone will receive a £200 rebate on energy bills in October, but this will have to be repaid over five years.

There will also be a £150m "discretionary fund" for local authorities to help worse-off families.

Mr Sunak told MPs: "'It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we don't have to adjust to paying higher prices would be wrong and dishonest.

"But what we can do is take the sting out of a significant price shock for millions of families by making sure the increase in prices is smaller initially and spread over a longer period."

Labour shadow chancellor, Rachel Reeves, called Mr Sunak's proposal "a buy now, pay later scheme" and said "Labour will keep bills low with a windfall tax on North Sea oil and gas producers with booming profits."

It's not just households that will be hit by rising energy and National Insurance costs, but business is set to feel the impact as well.

Chris Sargisson, chief executive of Norfolk Chambers of Commerce, said: "While assistance for households is welcome, businesses will be dismayed at the lack of support for those firms also struggling with their energy bills.

"Many have already been hit by steep rises, with further significant spikes expected as existing fixed tariff contracts come to an end in the coming months.

"Smaller firms are particularly exposed as they have neither the protections or financial support provided to households, nor do they have the negotiating power of larger businesses.

"Without action, soaring energy bills will force many firms to raise prices further which will, in turn, fuel the cost-of-living crisis for consumers and further drive surging inflationary pressure.

"The government should expand the chancellor’s rebate and clawback scheme for households to include small firms, as well as delay the impending National Insurance rise.

"These steps would give firms a better chance to weather the current storm without needing to pass costs through to consumers in the form of price rises."

Meanwhile, a Norfolk charity is concerned that soaring living cost will push more people in the region into poverty.

Claire Cullens, chief executive of Norfolk Community Foundation (Image: NORFOLK COMMUNITY FOUNDATION)

Claire Cullens, from Norfolk Community Foundation, said: "There is enormous stress on our clients and this will push people into the poverty bracket.

"People are barely keeping afloat. People struggling are less likely to have savings, they have no buffer. They are living in housing that is less fuel efficient and are most likely to be on the most expensive short-term fuel tariff.

"We've already got people who are just managing to stay afloat. It is going to project a huge number of people into the poverty category."

Julian Richards, manager of The Shack

Rihanna Royall, owner, and Julian Richards, manager, at The Shack in Waterloo Road in Norwich. Picture: Danielle Booden (Image: Archant 2021)

Julian Richard, manager of Norwich cafe, The Shack, revealed he is “very worried” about the price rises.

Mr Richards said: “We are a very small, family business and have only been going for four weeks.”

Although the NR3 café was opened in November, due to illness, Mr Richards and his partner, Rianna Royall, its owner, had to close their doors in December.

“We do pizza all day long, run the coffee machine, the fridge. We’re using electricity all day," he said.

“It will have a knock-on effect to customers. But we’re trying to keep prices low enough to help people and to help us make a profit.

“If prices are going to go up, who knows? We are going to see what business is like, we just have to see.”

He added: “The only thing we’re going to look forward to is a hot summer.”

Q&A

How much are energy bills rising by in April?

Ofgem has announced that its price cap will increase from April 1 for approximately 22 million customers. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,970 per year, while prepayment customers will see an increase of £708 from £1,309 to £2,017.

There are widespread warnings that this will cause some households to choose between heating and eating.

Why is everything more expensive?

Covid-19 has hit global supply chains with a combination of pent-up demand and delays to shipping as factories across the world face lockdowns and worker absences.

This has led to prices rising, particularly for raw materials.

Food prices have also risen as wages increase, including for HGV drivers due to recent shortages and with thousands of drivers leaving the UK to return to their home countries in the EU.

All of this is adding to eye-watering rises in energy bills after wholesale gas prices shot up by about 500pc in 2021, as well as record costs at the petrol pumps from hikes in oil prices globally.

Will inflation remain high?

Consumer Prices Index (CPI) inflation is currently running at 5.4pc as of December, according to the Office for National Statistics (ONS).

The Bank of England has warned that it expects CPI inflation to peak at 7.25pc in April, following the increase to energy prices, before falling back.

It is hoped that inflation will start to fall back in the second half of 2022, though it may not be until next year that CPI gets back to the bank's 2pc target.

What other costs can I expect to increase this year?

The Resolution Foundation recently said each household can expect outgoings to increase by £1,200 this year.

Along with rising energy bills, there is also a one-year 1.25pc National Insurance rate rise due in April to help pay for social care and NHS funding.

This comes as wages are already failing to keep up with rises in the cost of living, with average weekly earnings after taking account of inflation falling for the first time in more than a year.

The latest inflation figures have shown that food retailers are also starting to pass on higher costs to consumers, with inflation firmly hitting the supermarket shelves.