Inflation to hit 18% for Britain’s poorest families
The richest fifth of UK workers meanwhile will see their household inflation rise from 8.5% to 10.9%.
The latest report from the Institute of Fiscal Studies The long squeeze: rising inflation and the current government support package reveals that disproportionate inflation will see an out-of-work single parent £460 poorer in less than two months’ time while an average earner will be £760 worse off and the top quarter of earners £1,440 worse off.
It comes as a report published by the Resolution Foundation called for swift action from government to bring in additional emergency support for families facing stark choices this winter, with many simply unable to afford to heat their homes.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “This winter’s bills are going to be so horrendously unaffordable that there’s widespread agreement that something needs to be done.
“Unfortunately, while there are plenty of potential solutions being bandied about, we don’t yet know who will be a position to make a decision, and with every day that passes, it means people waiting even longer to get the help they need.”
The next Prime Minister will be announced on 5 September after the 160,000 Conservative party members have voted on who should replace Boris Johnson. Until then, government has said no decisions can be made on extending financial support for struggling families.
Incumbent Chancellor Nadhim Zahawi has suggested dropping an allowance within the price cap designed to protect energy companies from failure, funding it through the government instead and saving customers £400 a year. The plan would be ready to roll out as soon as the new Prime Minister is confirmed, he said, though there is no guarantee that either Rishi Sunak or Liz Truss would implement his policies.
Indeed Sunak has pledged to cut VAT on energy bills and spend £10billion supporting the most vulnerable through the benefits system, funded by a possible windfall tax.
Rival Truss has proposed axing green levies on energy bills and providing targeted support for those on lower incomes. Reports suggest she may also scrap the £400 energy bill support for those on higher incomes.
However, the IFS said households will still feel significant financial strain from October, and especially those on universal credit.
Even though Sunak confirmed universal credit would be uprated in line with inflation in September, claimants won’t receive the higher payments until April next year.
The report said: “This is a deficiency in uprating policy that could have been rectified months ago when the cost of living crisis first became apparent. The failure to do so now looks certain to create a policy headache not just this year, but next year as well.
“The government would do well – both for the current crisis and for beyond – to shift to uprating benefits using a more recent measure of inflation, or forecast inflation. This would go some way to ensuring that benefit values more closely track the prices that claimants face, and avoiding the kind of ad-hoc policymaking and short-term periods of hardship that the current system is prone to creating.”
Making sweeping changes to taxes and benefits requires complicated adjustments to HMRC’s processes and takes considerable time to implement, adding to the lag.
“Even if the new Prime Minister opts for the package being prepared by the current Chancellor, there’s no guarantee it would be ready for October’s price hike,” said Coles. “And while we wait for support to be put in place, millions of people will be struggling with nightmare bills.”