The ‘cost of living crisis’ refers to the fall in disposable incomes that the UK has experienced since late 2021. It is due to high inflation and other rising costs outstripping wage and benefit increases. This has been further aggravated by recent tax increases.
Our blog discusses the impacts of the cost of living crisis, and outlines how our instant payment solution can help financial wellbeing.
Cost of Living Crisis: Inflation
The current Consumer Price Index (CPI) – which measures the change in prices paid by consumers for goods and services – is currently up by around 9.4%.
The Bank of England aims to keep the CPI rate of inflation at 2% plus or minus 1% (i.e., between 1% and 3%) and adjusts interest rates to achieve this. The latest Bank of England forecast has inflation peaking at 10.2% in the fourth quarter of 2022.
This is driven by the £693, or 54% increase from the 1st of April for the energy price cap and a forecasted further increase of 40% in October. Inflation is also expected to remain high for the next two years, and the Bank expects that inflation will not reach its 2% target until the third quarter of 2024.
A serious cause to the cost-of-living issues in the UK is that inflation is outstripping the increases in nominal wages. The bank of England forecasts wage growth of 4.75% while inflation is over 8%. This is simply not sustainable for large portions of the UK public.
Cost of Living Crisis: Rising Gas, Energy and Fuel bills.
Ofgem chief executive Jonathan Brearley said that a typical household would pay £2,800 a year on their energy bills, which is an increase of £800 from October. This has risen sharply due to the demand for gas increasing as the Covid pandemic has eased, and because the war in Ukraine has threatened supplies from Russia.
Fuel prices have also increased sharply due to the price of crude oil increasing, which is used to make petrol and diesel and many people are expected to face fuel poverty in the future, which is when a household must spend a high proportion of its income on energy bills. According to the National Energy Action (NEA) charity: “Millions will simply not be able to heat their homes this winter”. Another problem is that the oil used to make petrol is paid for in US dollars, and the pound has been weak against the dollar, making fuel even more expensive. The Russia and Ukraine war has also impacted the UK’s fuel prices. These rises have caused a ‘cost of living catastrophe’ in the UK, with fuel costs driving the UK’s inflation rate up by 9%.
Fuel, raw materials, gas and electricity bills are the main ‘hidden costs’ that are rising and putting pressure on the end price of their product or service for the consumer, with three quarters of business owners having to pass these rising costs on to customers.
Cost of Living Crisis: Rent, Bills and Mortgages.
Private rental costs are now rising rapidly, increasing by 14 per cent in London over the past year and more than 19 per cent in hotspots like Manchester. Data shows that private rents are unaffordable for the poorest people in the country, with figures from 2021 showing that there are just two areas in England where the poorest families spend less than 30 per cent of their income on rent costs.
Data also shows that no region in England is affordable for a woman on a median salary to rent a private home. Housing costs have also been pushed up further for many by an increase in council tax bills, with around two-thirds of councils deciding to raise rates.
UK mortgage rates rise at the fastest pace in over a decade, and they could rise even higher in 2023 as inflation hits 9.4%. The ninth increase in inflation will add further pressure on households battling with the cost-of-living crisis, but it will also have an impact on our mortgages. The inflation figures came on the same day the ONS published data revealing the average house price in the UK had risen by 12.8% in May, which is up from 11.9% in April. The average property price is now £283,000.
Cost of Living Crisis: Rising taxes
From April 6 to April 5 2023 national insurance contributions will increase by 10 per cent, which ministers said will be used to tackle massive backlogs in the NHS and, in the coming years, improve social care services. These increases to income and corporation tax and higher NICs have contributed to the biggest UK tax burden since the 1950s.
Cost of Living Crisis: Income group and real time pay with IGsend
IGsend from Income Group enables payroll teams to make instant payments 24/7, 365 using Faster Payments. It gives the control and flexibility to pay employees whenever required within your payroll timetable. It’s easy to use, secure and futureproof. IGsend and its real time payments system can benefit people suffering from the cost-of-living crisis the UK economy is facing today.
People no longer need to struggle paying bills and getting themselves into payday loans as the payments are instant. Income group uses a different payment method to Bacs (which is used by most businesses and can take 3 working days), whereas IG send can ensure payments are made and received straight away, making payments to employees more reliable and stress free.
IG send can strengthen the trust between employees and employers to improve financial and mental wellbeing. It allows you to set your own payroll timetable to increase capability. Your money is also safe and secure due to data and money being encrypted, regulated and safeguarded.