Families face a ‘cost of living catastrophe’ next year thanks to soaring energy bills, tax increases and the highest inflation in 30 years, a report warns.

It predicts that 2022 will be the ‘year of the squeeze’, with households facing a hit of at least £1,200.

According to the Resolution Foundation, inflation is expected to rise to 6 percent in spring. This means that wages for Christmas next year could not be higher than today.

Meanwhile, it says rising gas prices could add at least £600 to family budgets when the energy price cap is reviewed in spring.

On top of this, households face higher taxes from April when National Insurance goes up by 1.25 percentage points to fund the NHS and social care – a rise that will affect middle-income earners more. 

Families face a ‘cost of living catastrophe’ next year thanks to soaring energy bills, tax increases and the highest inflation in 30 years, a report warns (File image)

Families face a ‘cost of living catastrophe’ next year thanks to soaring energy bills, tax increases and the highest inflation in 30 years, a report warns (File image)

The report predicts that 2022 will be the ‘year of the squeeze’, with households facing a hit of at least £1,200

The report predicts that 2022 will be the ‘year of the squeeze’, with households facing a hit of at least £1,200

Rishi Sunak (pictured) announced in his Budget that town halls will be able to put up the levy by 3 per cent in April, partly to pay for social care

Rishi Sunak (pictured), announced that the town halls would be allowed to raise the levy by 3% in April to partially pay for social services.

The majority of town halls also expect to increase council tax by close to 3 percent during the same month.

The think-tank said the combined impact of these factors would leave the average household at least £1,200 worse off – but warned that even this may be an under-estimate because energy bills could rise by more than expected.

Some experts have warned that surging wholesale gas prices could add as much as £1,000 to household bills.

Torsten Bell, chief executive of the Resolution Foundation, said: ‘2022 will begin with Omicron at the forefront of everyone’s minds.

‘But while the economic impact of this new wave is uncertain, it should at least be short-lived. Instead, 2022 is the year of squeeze.

‘The overall picture is likely to be one of prices surging and pay stagnating. The truth is that real wages have fallen and will continue to fall into next Christmas.

‘The peak of the squeeze will be in April, as families face a £1,200 hit from soaring energy bills and tax rises. So large is this overnight cost-of-living catastrophe that it’s hard to see how the Government avoids stepping in.

‘Top of the Government’s New Year resolutions should be addressing April’s energy bills hike, particularly for the poorest who will be hardest hit by rising gas and electricity bills.’

While the Resolution Foundation is left-leaning, and it is managed by Ed Miliband’s former advisor, David Willetts is its former Tory minister. These predictions are similar to those made by many top experts.

The inflation rate, currently at 5.1%, will reach a peak of 6.1% in spring. This would mark the highest level since 1992. Pay packets have stagnated as a consequence. 

Some experts have warned that surging wholesale gas prices could add as much as £1,000 to household bills

Some experts have warned that surging wholesale gas prices could add as much as £1,000 to household bills

Most town halls are also expected to put up council tax by almost 3 per cent in the same month

Many town halls will also be expected to raise council taxes by nearly 3 percent in the same month.

Reports indicate that real wages grew flat in October but fell almost immediately last month. They are unlikely to grow until the fourth quarter of 2022. 

Therefore, the real wage is expected to rise by just 0.1% from the beginning of 2022. By the end of 2024, real wages are set to be £740 a year lower than if the UK’s already sluggish pre-pandemic pay growth had continued.

The think-tank said that in April the cap on energy bills is expected to rise by around £500 a year. Coupled with a further £100 to recoup the costs of energy firm failures, this could mean a typical energy bill rising by around £600 a year.

Low-income families will see a greater impact on this increase as they tend to spend more on energy. 

The share of income spent on energy bills among the poorest households is set to rise from 8.5 to 12 per cent – three times as high as the share spent by the richest households.

The report said there was significant variation in energy usage within income deciles – groups created by ranking Britons into ten bands according to earnings – meaning some households faced increases of far more than £600.

This increase will fall disproportionately on low-income families as they spend far more of their income on energy

Low-income families will see this rise because they are likely to be spending more energy than their income. 

The share of income spent on energy bills among the poorest households is set to rise from 8.5 to 12 per cent – three times as high as the share spent by the richest households

The share of income spent on energy bills among the poorest households is set to rise from 8.5 to 12 per cent – three times as high as the share spent by the richest households 

It added: ‘One in six households in the poorest two deciles have energy bills at least 25 per cent above the typical household. 

They could see an increase of £750 or more in April thanks to larger families, outdated boilers or poorly insulated properties.’

Rising tax bills in April will have a significant impact on families with higher incomes. The average combined impact of the freeze to income tax thresholds and the increase in personal National Insurance contributions is £600 per household.

For the richest 50 per cent, the NI rise alone will raise tax bills by £750 on average. The VAT rate for accommodation and hospitality will return to 20% on April 1 and the dividend tax rates are also set to rise.

The report said: ‘There is a consensus that taxes will be rising in the years ahead given the long-term impact of the pandemic as well as existing fiscal pressures.’

The Government said ‘decisive action’ to offer support worth £4.2billion for families included changes to Universal Credit and measures to help with bills, including the energy price cap and cold weather payments, as well as freezing alcohol and fuel duty.

 … and council tax could surge by 6%

Written by the Policy Editor

Because of the small print, which is only now being revealed, thousands could be facing a catastrophic rise of up to 6 percent in their council tax bills next year.

Rishi Sunak, the Budget Secretary, announced that local town halls would be allowed to raise the April levy by 3% to help pay for social services.

However, it is now clear that local authorities will not be allowed to use all their power to raise council taxes this year. They can transfer the entitlement to next.

It means some town halls – believed to be around 36 – will be able to add up to 3 per cent on top of the 3 per cent announced by the Chancellor. 

Millions face catastrophic council tax rises of up to 6 per cent next year because of small print which has only just come to light (file photo)

Due to small print that has just been revealed, millions could face a devastating rise in council taxes of as high as 6 percent next year.

Levelling Up Secretary Michael Gove has also announced that police authorities will be able to increase their share of council tax bills by £10, and some fire brigades by £5.

All of this could see average Band D council tax bills soar by more than £100 in a year – with many areas breaching £2,000 for the first time. This is in addition to the 1.25 percentage points increase in National Insurance which pays for the NHS/social care.

Last night Harry Fone, of the TaxPayers’ Alliance campaign group, said: ‘Another inflation-busting council tax hike will decimate many households’ finances…

‘Town hall bosses must get a grip, ramp up efficiency and keep tax rises to an absolute minimum.’

Current inflation is 5.1%. In April this year, the average Band D council tax bill in England was £1,898 – up £81 on 2020. 

A document published by Michael Gove outlined the Government’s proposed ‘council tax referendum principles’

A document published by Michael Gove outlined the Government’s proposed ‘council tax referendum principles’

Sunak claimed that the town halls could add 2 percentage points next year, without needing to hold a local vote, and 1 percent for social assistance. If all areas do this, it could see half of districts imposing council tax bills of £2,000 a year.

However, it is now clear that these increases may be higher than expected: four to five percent in certain areas and even six percent overall. 

A document published by Mr Gove outlined the Government’s proposed ‘council tax referendum principles’ – the rules by which town halls can avoid having to hold a local vote if they put up bills too high.

As well as the 3 per cent announced in the Budget, it said there would be an ‘ability to add any unused parts of the 3 per cent adult social care precept flexibility available in 2021/22’. According to some reports, there could be up to four councils with 3% per year. 32 could also use less than 2%.

Police and crime commissioners will also be able to add £10, while the eight lowest-charging fire authorities will be able to add £5.

The Department for Levelling Up said it has given an additional £3.5billion to help councils. A spokesman added: ‘Local people will continue to have the final say on council tax with the ability to veto excessive rises.’

Countdown to 2022’s cost-of-living crunch. From tax hikes to increased energy bills, here are key dates that you can add to your schedule – as well as some money-saving options!

Sylvia Morris for The Daily Mail

As inflation rises and taxes increase, the biggest pinch for households in a decade is coming to them in 2022.

Prices rose as fuel and energy prices rocketed in the latter part of 2021. At 5.1%, inflation was high and it is expected to rise to 6.1% this year.

Retired people face a difficult year as the state pension will only rise 3.1 per cent, while many will have pensions that don’t keep pace with inflation.

Late 2021 saw prices surge as the cost of energy and fuel rocketed. Inflation hit 5.1 per cent and is now predicted to reach 6 per cent in the New Year

As fuel prices and energy rose, late 2021 witnessed the price of goods rise. The inflation rate was 5.1% in 2021 and will rise to 6.1% by 2020.

It is expected that the Bank of England will continue raising its base rate. That means mortgages will be more expensive for many millions. Yet, at the same time, interest rates paid on savings are still pitifully low — leaving nest eggs savaged by inflation.

Charity The Resolution Foundation warns that 2022 will be the ‘Year of the Big Squeeze’ with families expected to take a £1,200 annual hit on income from April. 

It seems that no one will be spared. Rising bills will hit families with lower incomes, which spend more on energy than their salaries, the hardest. Tax hikes will affect wealthier households.

Sarah Coles, senior personal finance analyst at investment service Hargreaves Lansdown, insists: ‘2022 is a year of change — but not in a good way. 

Many of the financial developments that are in our pipeline will make us poorer by the time next year ends.

‘It’s not all bad news though. Some positives hidden in the rising price are the removal of the loyalty penalty to insurance customers and lower water bills. Also, the administration burden is reduced for family members of deceased relatives.

‘Unfortunately, for most of us the bad outweighs the good so we need to plan ahead and be prepared for the worst 2022 can throw at us.’

Here, Money Mail sets out the dates on which you’ll start to feel the pinch…

Neue year, New rules 

When you get a renewal offer for home or auto insurance, your insurer must give you the exact same deal as new customers.

Insurance companies used to offer better terms to attract new customers. However, loyal policyholders had to pay higher premiums every year.

While this is good news to those who remain with their same insurance each year, it may mean the end for very low deals for skilled switchers.

City watchdog the Financial Conduct Authority says six million loyal car and home insurance policyholders would have saved £1.2 billion in 2018 if they had paid the average price for their policies — amounting to £200 each.

The New Year also brings about a tweak to the rules which will mean there is less paperwork for thousands of people with no inheritance tax to pay — sparing 230,000 of us extra admin.

Rate of interest threat

When the Bank of England’s monetary policy committee meets in February the base rate could rise again — sending the cost of borrowing up for millions. 

Rate hikes: The Bank of England’s monetary policy committee is to meet in February , at which point the base rate could rise again - sending the cost of borrowing up for millions

Rate hikes: The Bank of England’s monetary policy committee is to meet in February , at which point the base rate could rise again – sending the cost of borrowing up for millions

The rate was increased from 0.1% to 0.25 percent this month. Experts are concerned that credit card and mortgage rates may rise but banks are more likely to offer rate hikes to savers.

If the base rate rises to 1 per cent, borrowers with a typical £150,000, 25-year mortgage, on a standard variable rate of 3.59 per cent, would pay an extra £75 a month, or £900 a year, according to broker L&C. Those with £450,000 loans will pay £2,688 a year more.

Rail fares’ 3.8% hike 

The train companies will raise the price of tickets by 3.8% starting March 1.

 This will add £149 to the cost of an annual season ticket from Guildford to London and £215 to a Milton Keynes to London fare. 

March also marks the expiration of the 12.5 percent VAT rate on hospitality and tourism. The result could cause price hikes at restaurants and bars.

To boil the bills 

On February 4, energy watchdog Ofgem announced its new price limit. Analysts Cornwall In-sight have predicted the £1,277 cap will increase to £1,865 on April 1 as the cost of wholesale gas keeps rising.

This cap determines the maximum price providers will charge for standard variable tariffs, per kilowatt. 

On this basis, the average household currently pays £1,277 a year but the actual amount depends on how much energy you use and how you pay.

Rising bills: Analysts Cornwall In-sight have predicted the £1,277 price cap will rise to £1,865 on April 1 as the cost of wholesale gas keeps rising

Rising bills: Analysts Cornwall In-sight have predicted the £1,277 price cap will rise to £1,865 on April 1 as the cost of wholesale gas keeps rising

The cap for prepayment meters is £1,309.

The Resolution Foundation’s Labour Market Outlook estimates a typical energy bill could rise by as much as £600 a year.

However, there are rays of hope: water companies will order price drops from April 1st to 2025.

April tax trauma 

Due to the Health and Social Care levies, workers will see a 1.25 percentage reduction in their earnings. It starts April. 

The hike, which applies to England, Scotland, Wales and Northern Ireland, means you will pay National Insurance at 13.25 per cent on earnings between £9,880 and £50,270 and 3.25 per cent on earnings above.

Someone on a salary of £20,000 will pay £130.40 extra, while at £40,000 it’s £380.40. On £60,000 you’ll pay an extra £630.40, say accountants Deloitte. 

The new levies will not be charged to those over the age of 65 who work and are employed until April 2023.

As wages rise, so will a freeze in tax banding. Currently income tax kicks in on earnings above £12,570 — anything you earn under that amount is tax free.

You will then be subject to 20 percent income taxes on your earnings. The higher-rate threshold is £50,270 — and you pay 40 per cent income tax on earnings above this amount. 

The income tax bands will be at the same levels as before April 2026. That means that inflation is not going to affect your wages.

Income grab: The new 1.25% Health and Social Care levy means someone on a salary of £20,000 will pay £130.40 extra annual tax while at £40,000 it’s £380.40

Income grab: The new 1.25% Health and Social Care levy means someone on a salary of £20,000 will pay £130.40 extra annual tax while at £40,000 it’s £380.40

Get ready for spring 

Also, April will see council tax hikes. For the future three years, an increase of 3.6% per year is required by Institute for Fiscal Studies to allow town halls services to run at pre-pandemic levels. 

This would add an extra £68 a year to the average Band D property bill of £1,898.

A freeze on rising council taxes in Scotland will expire. Local authorities will then be free to charge as much or little as they wish for the first times since 2007.

Additionally, the rate at which dividends are paid on income from shares will rise by an additional 1.25 percent. 

The tax is paid on dividend income above the £2,000 allowance. It will rise from 7.5 per cent to 8.75  per cent for basic rate taxpayers, while higher-rate taxpayers will pay 33.75  per cent.

Pay rise pittance

Because the rise in state pensions of just 3.1% is below inflation, UK pensioners will feel the pinch starting April.

The Government suspended the ‘triple lock’ guarantee for a year after the pandemic distorted wage inflation which stood at 8.3 per cent.

Pensioners across UK will be hit from April because the state pension rise of only 3.1 per cent is well below the rate of inflation (File image)

The April increase in the UK’s state pensions of 3.1% is below inflation, which will impact UK-based pensioners (File Image)

The ‘old’ basic state pension goes up by £4.25 a week to £141.85 while the new flat-rate state pension rises £5.55 a week to £185.15.

The decision to ignore the earnings link of 8.3 per cent will cost those on the new flat-rate pension £486.20 this year — or £9.35 a week.

Under the triple lock it would have risen to £194.50 a week or £10,114 a year.

Please be aware of the deadline

Finally, from September 30 old £20 and £50 notes will no longer be legal tender. You should allow yourself plenty of time before you need to use them.