HOLD tight – this is set to be the year of the squeeze, with soaring energy bills, inflation and rising taxes.
From April, money experts predict, households will face a whopping hit to their incomes of £1,200 a year.
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The Resolution Foundation is an independent think tank focused on improving living standards for those on low to middle incomes.
It warns families are facing a “cost-of-living catastrophe” in 2022, as the energy price cap goes up and National Insurance contributions rise by 1.25 percentage points in three months’ time.
On top of that, inflation is set to climb to six per cent – its highest level in almost 30 years, eating further into our spending power.
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It is a grim picture . . . but we have put together a team of money experts to give you advice on riding out the storm . . .
Household
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The Centre for Economics and Business Research says a typical family of two adults and two kids will spend £33.60 more a week due to inflation, around £1,750 per year.
Scott Dixon says: “Food spending is the biggest household expense. Be thrifty and imaginative. Yellow stickers make serious savings. Aldi reduces ‘on date’ fresh produce by 30 per cent from 8am and 75 per cent from 6pm. Lidl does 70p stickers for food it wants to get rid of.
“Buy cheap cuts of meat and cook them in a slow cooker. You can buy one for £15 and they only cost about 2p an hour to run. Use a halogen oven instead of a conventional one. They cost about £40, use less power and soon pay for themselves. Cooking with it three or four times a week, instead of your conventional oven, can save £65 a year.
“Are there any direct debits you can be cancel, such as a gym membership you don’t use? Any broadband or mobile phone bills that can be cut by shopping around? Do you use that subscription TV package?
“Are you paying too much for insurance? Probably. Haggle! You don’t necessarily have to leave your provider. Compare prices online and call to speak to the retentions department, which has the most leverage when it comes to retaining existing customers.
Shopping
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In the 12 months to October 2021, inflation rose by 4.2 per cent – the highest it has in ten years. And it could rise by another five per cent in 2022. Essentials such as bread and toiletries will rise, plus luxuries such as beer and flowers.
Martyn James says: “Think before you click when buying online. There are convincing fake sites, poor-quality goods and dodgy reviews to navigate, so be cynical. Pay by credit card if you can, then pay it off straight away or within the month.
“If you spend £100-plus and buy direct you have more rights under the Consumer Credit Act and can seek a refund from the card provider if there’s a problem.
Failing that, you can ‘charge back’ money on a debit card too if the items don’t show up. Always check the ‘contact us’ page. If you don’t see a phone number or email, don’t buy. Why give an online shop your cash if they don’t want to talk to you?
“Bargains are out there if you shop around. Great deals can be found online, where price comparison websites are a godsend. Think ahead and research a store’s returns policy before going in. Many customers mistakenly assume they can always take stuff back. If you want to take a few items home to try them on, speak to a sales assistant first – don’t assume you can.
“Your right to return goods that are perfectly fine is at the shop’s discretion, though your statutory rights are not affected. Ask for a till receipt so you can return items if buying for someone else. Hold on to your own till receipts too.”
Interest rates
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With rates so low in 2021, there is only one way for them to go: Up.
Jonathan Rolande says: “The Bank of England announced an interest-rate hike in December, which is good news for savers.
“But they can’t expect extra interest to be added. They need to hunt for it. The top ‘easy access’ account now pays 0.67 per cent. A fixed saving gives a higher return but savers need to weigh up the benefit of getting a higher rate now against missing out on any potential increase.
“Inflation is high and set to move higher, meaning no savings account is paying enough to keep pace. So cash is losing value in real terms.
“Consider whether you can afford to invest some to get a higher return.
“With mortgages, are you on the best rate? House values have increased massively, so you might be able to bag a better rate as your loan-to-value ratio will be lower.
“Should you go into a fixed-term mortgage? Rates may be on the rise but be careful, as you’ll pay more if you fix.
“Getting the best mortgage deal doesn’t just need a decent deposit, you now need a good credit score too. You can boost your score by getting on the electoral roll, checking your credit file – it’s free – not missing payments and by keeping credit applications down.
“It will be tough for many but overpay if you can, even just for a few months.
“Many people have seen their mortgage payments reduce in the past few years as a result of historically low interest rates.
“If your payments fall, ask if you could set aside that extra money and make extra payments towards your mortgage, rather than letting them get swallowed up in everyday spending elsewhere.”
Transport
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Train companies are indicating they will claw back lost pandemic fares by hiking ticket prices by 3.8 per cent and petrol prices are also set to rise.
Dash Tabor says: “Book trains in advance. A set number of reduced-price ‘Advance’ tickets are allocated to specific trains and sold on a first-come, first-served basis.
So you’ll need to be quick off the mark.
“Instead of buying one single ‘through’ ticket, buy multiple tickets and split the journey to pick up the cheapest fares for different parts of your route, capitalising on advance tickets and off-peak fares.
“How you drive has a big impact on your car’s fuel and battery consumption. Drive smoothly and stick to the speed limit. Driving at 80mph uses 25 per cent more fuel than 70mph. Maintain the correct tyre pressure and empty your boot of junk.
“An advanced driving course will teach you to motor more economically and could bring down your insurance premiums. Fill up at the supermarket, where a litre of petrol can be 6p cheaper. Several of the big stores offer free electric charging.
“Make use of cashback schemes. Lots of petrol stations and supermarkets offer loyalty cards to encourage customers to continue filling up with them.
“The schemes usually work in the same way, Each time you buy fuel, points are accumulated to exchange for discounts at a later date.
“Utilise modern technology when on the move. There are lots of great apps for finding the cheapest parking spaces, for instance. Don’t simply park up in the closest spot you find or the one you know the best.
“Particularly in big cities, this can save you a fortune. Or park on the edge of town and take a walk. Your fitness tracker will welcome the additional steps.”
Dash is a co-founder of journey planning app TUBR.
Energy bills
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Last year bills soared and dozens of suppliers collapsed. Now consumers face hikes of up to 30 per cent on their annual gas and electricity bills
Aimee Balta says: “Because of a five-fold increase in the wholesale cost of gas, there could be potential price hikes of over £500 in April and October. We are all going to have to get used to using less energy.
“Firstly, fit draft excluders to all doors and invest in thermal curtains. Closing your curtains as soon as it goes dark can save up to 25 per cent of the heat that escapes from your home.
“Reducing your household ther- mometer by 1C can cut up to £100 a year from your bill. Do your laundry at 30C and go easy on the tumble dryer.
“Spend two or three minutes less time in the shower each day. You’ll soon notice a saving.
“You can save around £40 a year just by remembering to turn off your appliances at the plug, instead of leaving them on standby. Think about getting a standby saver or smart plug, which allows you to turn all appliances off standby in one go.
“Check the instructions for appliances you aren’t sure about. Some satellite and digital TV recorders may need to stay plugged in to record shows you want.
“Be savvier in the kitchen too. Don’t overfill the kettle and save yourself £8 a year on your electricity bill. Also consider fitting an aerator – a small gadget with tiny holes – on to your kitchen tap to reduce how much water comes out without affecting how it washes or rinses. They are cheap, easy to install and could save you £14 a year.
“Get effective insulation of your hot water cylinder. Upgrade from a thin spray foam or loose 25mm jacket to a British standard jacket 80mm thick, saving yourself £20 a year in the process.”
Rising Taxes
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From an increase in NI to council tax rises, most of us will pay more into government coffers.
There will be a freeze on an increase in personal allowances until 2025 and an increase in NI to 13.25 per cent for employees and 10.25 per cent for the self-employed. Council tax will go up and corporation tax will increase to 25 per cent for companies with profits over £500,000.
James Lee says: “Prepare for the future. It’s vital to get your online tax return filed by January 31. Otherwise, you’ll be hit with a £100 fine, then five per cent of tax that remains unpaid after 30 days.
“Newly self-employed people need to be prepared to pay tax in advance, too. If you are an employee, you can claim tax relief on flat-rate expenses – if you clean your work uniform, say, or spend your own money repairing equipment you need.
“Check the HMRC website to see if you qualify for one of these flat-rate deductions. Many expenses incurred running a business can be deducted from profits – such as fuel, phone, or home-office costs – which could cut your tax bill.
“For each £80 invested into a pension plan, the Government will top up £20. If your earnings are above £50,000 you will also get a further 20 per cent in tax relief.
“It is possible to invest up to £20,000 into an ISA each year. All income and capital growth is tax free. If you have been taxed too much, claim a refund by filling out HMRC’s form R40.
“Tax credits help those looking after children, disabled workers and other workers on low incomes. The two main types you can claim are working tax credits and child tax credits.
“If you rent out property, you can deduct a range of costs from your taxable income.”
Martin Lewis reveals how households will pay 40% more for steeper energy bills next year
