Cost of living, the perfect storm is looming this winter
There is a “perfect storm” cost of living brewing this winter. Hard-working families are struggling to afford rising fuel costs, tax hikes, food prices and housing costs. And it seems like the bad news just keeps coming.
So how many factors could impact family finances this winter? Here’s what’s behind the cost of living crisis and what you can do if you’re struggling financially.
Families face cost of living crisis
A cost of living crisis is looming as families face increases in almost every area of their family budget. It’s a perfect storm because so many challenges seem to come at the same time:
- Home prices rose 11% last year. It also pushed up rental prices by 2.1% over the same period.
- There are many areas where council tax is set to rise – my bill in Suffolk will go up 4% next year.
- Gas prices are rising rapidly and some energy companies are going bankrupt. Customers who reach the end of their contract see their energy bills increase considerably.
- Food prices are expected to increase significantly and there are food shortages in many stores.
- Taxes are on the rise with a 1.25% increase in national insurance from 2022.
In addition to these rising costs, many families also face reduced income and savings:
- Leave payments during the lockdown were only 80% of regular wages. As a result, many families were forced to spend their savings or go into debt.
- Wage freezes have affected many workers as businesses grapple with lost revenues and rising costs from Covid.
Why is there a cost of living crisis?
So what caused the cost of living crisis? Many of the problems have been at least in part caused by the long-term effects of the Covid pandemic.
- Housing prices have been put under pressure by the Covid lockdowns. More and more families decided to relocate for more space as they struggled to work from home in smaller homes.
- The increases in food prices are partly due to the shortage of truck drivers. There was a backlog of heavyweight testing during containment.
- The increase in the national insurance tax will be used as a first step to help clear the NHS Covid backlog. Later, it will be used to finance social assistance.
But there are also several non-Covid reasons behind the cost of living crisis:
- There is long-term upward pressure on house prices due to a housing shortage.
- An extremely cold winter in Europe and Asia led to gas shortages and price increases.
- The increases in food prices are partly due to a shortage of carbon dioxide, which is used in the production and storage of food. The carbon dioxide shortages were mainly caused by rising gas prices (in turn due to weather conditions).
- Tax hikes have been expected for some time to fund social care, so Covid is only partly to blame here.
What to do if you are having trouble
If money is already running out and you’re worried about your finances this winter, here are some steps you can take:
- Write a detailed budget. If you’re really struggling, zero-based budgeting may be a good method to try.
- Get advice. Citizen Advice has a lot of great information on its website and you can talk to an adviser. Stepchange can also provide advice on debt management and budgeting.
- Talk to your mortgage provider. They might consider letting you pay interest only on your mortgage for a period of time until your situation improves.
- Plan a super frugal Christmas. Explain to your children that money is limited and that you need to give smaller gifts this year. Plan inexpensive treats together, such as a night walk to see the lights or baking Christmas treats together.
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