British families face the biggest income squeeze in a generation

British families face the biggest income squeeze in a generation

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Family finance experts say that the cost of living of British households in April will exceed the highest level since the 2008-09 financial crisis, and it may be more severe than any situation experienced by a generation.

Extreme increases in household gas and electricity bills (possibly more than 50% in April), national insurance and income taxes that have risen sharply on the basis of the highest general price increase rate in a decade will put severe pressure on household budgets, and the poorest households The hardest hit.

Martin Lewis, the founder of Money Saving Expert, said that the upcoming increase in natural gas and electricity prices is “a nightmare that will plunge millions of people into fuel poverty.”

Paul Johnson, director of the Institute of Finance, said: “At least since the financial crisis, at least since the financial crisis, prices have risen sharply, especially energy prices, and the impact on average household income will be greater than anything. A long time before then. time.”

Just a few weeks before the local elections in May, the looming revenue blow caused serious political difficulties for the Boris Johnson administration. This week, the leader of the House of Commons, Jacob Rees-Mogg, said Jacob Rees-Mogg. Put pressure on the prime minister Abolish the £12 billion national insurance cost increase plan.

But canceling the increase will only ease rather than eliminate the sharp decline in household income, which includes three elements.

Energy prices are rising

So far, the government’s billing ceiling has protected households from the impact of soaring wholesale energy prices, but this will be lifted in April. Most estimates indicate that if the government does not intervene to lower the billing level, the ceiling will need to be increased by more than 50%.

Investec’s calculations indicate that the April price ceiling will rise by 56%. Promote the typical Energy costs have dropped from £1,277 per year to just under £2,000.

This affects poorer households the most, as they tend to spend a larger proportion of their income on necessities. data According to data from the National Bureau of Statistics, 7.1% of the expenditures of the poorest tenths of households are spent on electricity and natural gas, while the proportion of the richest one-tenths is 3.9%.

The imminent rise in energy prices has had a huge impact on discretionary consumption power after households pay for rent or mortgages, food bills and water bills and other utilities. Calculations by the British Financial Times show that this increase will reduce the discretionary spending of the poorest households by nearly 7%, the middle-income group by nearly 4%, and the wealthiest households by 2%.

In recent years, the United Kingdom has not seen such a sudden decline in revenue at any time, leading to what Thorsten Bell, CEO of the Resolution Foundation think tank, called “an overnight cost of living disaster.”

Tax increase

The price increase will be exacerbated by two major personal tax increases planned for the family at exactly the same time in April.

First, the national insurance rate for employees was raised by 1.25 percentage points, reducing most of the wages. Employers are unlikely to compensate their employees for this additional tax, and they are likely to limit salary increases because they will also face their own salary increase of 1.25 percentage points.

The sum of employer and employee tax increases is Expected to improve It will reach 12.7 billion pounds next year, and for each of the 29.4 million employees in the UK, the average income will exceed 400 pounds.

Except for the increase in national insurance, all income tax thresholds and allowances will be frozen, and taxation will increase as people’s income increases. The Ministry of Finance estimated in the March budget that the threshold freeze will bring in at least £1.6 billion in revenue in 2022-23.

In general, these tax increases will deal a greater blow to high-income families because a larger percentage of them are working.

The cost of living has risen

Energy price increases and tax increases will occur when prices have risen faster than at any time in the past decade. Consumer price inflation was 5.1% in November, and Goldman Sachs economists expect prices to rise by 6.8% in April from the same period last year, even if the government offsets the increase in natural gas and electricity bills.

The price increase is much higher than the increase in average income, pension or minimum wage, which plans to increase by 6.6% in April.

Even before prices may rise significantly faster than wages, the Office of Budget Responsibility, an expenditure monitoring agency, predicted that actual income will shrink this year. The Resolution Foundation now expects that the income crunch will continue until 2022, and there is little prospect of relief in 2023.

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