Kate O’Raghallaigh takes a look at the rising cost of living

Even for those of us who live ‘on the cheap’, as it were, the cost of day-to-day living has only been going in one direction over the past few months, and that direction is up. The basic requirements of everyday life, such as staple food items and in particular, utilities, have seen significant rises over the past year.

According to price comparison site Mysupermarket, the average cost of a staple food basket (that is, basic food items such as bread, rice, pasta, sugar and so on), has gone up by 11% compared to last year. For a family of four who spend an average of around £100 per week on shopping, this equates to an increase of £572 per year.

Gas and electricity providers have similarly increased their tariffs by between 12 and 15% over the past year, with British Gas hiking the price of its cheapest tariff by 18.6%, or £138 per year in February.

The Office for National Statistics (ONS) recently released figures showing inflation had reached 2.5% in February, an increase of 0.3% since January. The ONS cited increases in the cost of utilities as the main cause of the upwards direction of inflation.

Furthermore, research from Alliance Trust found that consumer financial wellbeing in Britain took a serious tumble in the last quarter of 2007 as affordability concerning fuel, food and debt came under strain. Shona Dobbie, head of Alliance Trust Research Centre, says: “Our measure of consumer wellbeing shows a worsening picture not only for household budgets but for consumers’ net wealth and the economy as well. This is the first time since the end of 2004 that all these elements [food, fuel and debt repayments] that make up consumer wellbeing, have simultaneously contributed to financial strain.”

A source of the problem

But why has the cost of living sky rocketed? Utilities have played a major part, with gas and electricity price hikes having provided fodder for news headlines over the winter months.

In January, prior to British Gas’s price hike of 15%, the National Consumer Council (NCC) and the National Energy Council (NEC) called for energy providers to create low-cost social tariffs to ease the elderly and low income families out of fuel poverty. Fuel poverty officially means that you pay more than 10% of your income on utility bills. According to watchdog Energywatch, there are now approximately 4.4 million households living in fuel poverty in the UK.

Further price increases to energy tariffs have followed the NCC and the NEC campaign, although the issue of winter fuel payments for the elderly was addressed in the 2008 Budget.

There are a number of contributing factors to energy providers increasing their costs, according to Scott Byrom, utilities expert at price comparison site Moneysupermarket. He says: “It all comes down to wholesale gas prices. Oil prices, the cost of distribution and energy providers’ obligations to observe certain green strategies, also come into play. The exact reasons for the price increases are likely to be investigated by watchdog Ofgem, which has already said that it will be looking into it.”

Most of us will be now be facing utilities bills of more than £1,000 a year, says Byrom. He continues: “A lot of consumers have been with their energy provider for a long time and many of them have never switched their provider.” Consumers could save money by switching to an online tariff and changing their bill payment method, says Byrom. “Most people are still paying their quarterly bills with cash or cheque,” he says. “You can reduce the cost of your bills by setting up a direct debit, or switching to an online tariff, which is likely to be around £150 cheaper per year than a standard tariff,” he concludes.

Budget 2008

But what about the Budget – did the Chancellor do anything to alleviate the issue? Winter fuel payments, which are given to pensioners and those over 60 years of age to assist with their fuel bills, were increased from £200 to £250 for the over 60’s and from £300 to £400 for the over 80’s (coming into effect on the 6 April 2008). “It’s encouraging that the Government has made the move to increase the assistance available to the elderly,” says Byrom. “My only concern would be how the increases are going to be promoted so that as many people as possible will make use of them,” he adds.

Despite your utility bills and your weekly shopping basket making a larger-than-usual dent in your finances, it’s worth seeing if you can reduce the impact of rising prices by looking for a more competitive gas and electricity deal. Even arranging a direct debit payment instead of getting out your chequebook every month, could wind up saving you money.