New research reveals the extent to which UK households are struggling with the cost of living crisis. According to a leading consumer group, 2.5 million households have missed at least one bill payment in January.
With this worrying statistic in mind, let’s explore why British households are struggling so much.
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Cost of living crisis: what do the findings reveal about bill payments?
According to Which?, 2.5 million households in the UK have missed a mortgage, rent, loan or credit card payment in January. This figure is up significantly from last year. In January 2021, 1.7 million payments were missed, suggesting that a growing number of households are struggling with the rising cost of living.
Perhaps unsurprisingly, missed payments were more common among lower-income households. According to the research, 14% of households with an income below £21,000 missed at least one payment in January. Of those in receipt of Universal Credit, a hefty 28% have missed a payment.
What is driving the cost of living crisis?
Inflation is currently running at a whopping 5.4% according to the Office for National Statistics. This means that the prices of everyday goods and services are rising at a fast pace. With average pay rises not expected to come close to this figure, it isn’t difficult to see why many households are struggling.
With this in mind, it’s perhaps not surprising to note that 58% of respondents in the Which? survey say they have recently been affected by increased food prices. On a similar note, 17% say they now pay more in housing costs, while the same number of people say their broadband bills have also increased.
Sadly, 2022 isn’t set to get any easier for those struggling with the current cost of living. That’s because some analysts expect inflation to rise to as much as 7% later this year. If this happens, the rate at which prices are rising is set to accelerate. This will pile further pressure on household budgets.
What other factors could affect the cost of living in 2022?
While prices are already going up elsewhere, households will also have to brace themselves for higher energy and National Insurance costs from April. Let’s take a look at these two factors in more detail.
1. Energy bills set to soar
While we don’t know the future inflation rate for sure, we do know that the cost of energy is set to increase substantially this year.
Ofgem’s energy price cap currently limits the cost energy suppliers can charge customers for each unit of energy. Due to soaring wholesale costs, the current cap means suppliers have to sell energy to customers at a lower price than the current market rate.
However, the cap is set to be reviewed soon, and it’s an open secret that it’s set to increase massively. Some analysts predict it will rise by as much as 50%, meaning many of us will see our energy bills skyrocket in 2022.
Worryingly, it appears that many households are already struggling with the current cost of energy. In the Which? survey, 51% of respondents say they were already putting the heating on ‘less frequently’ as a result of high energy costs.
2. Upcoming National Insurance hike
In addition to soaring energy prices, it’s also worth bearing in mind that National Insurance (NI) is set to be hiked by 1.25% from April. This will add £130 a year to the tax bill of a modest earner on £20,000 per year.
As the planned NI increase comes at a time when bills are already soaring elsewhere, it is widely felt that the National Insurance hike should be scrapped.
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How are households coping?
While not much can be done about rising energy prices and the National Insurance hike, Which? says some households are trying to cope with the rising cost of living by buying cheaper products and shopping around more.
Worryingly, Which? also reveals that some respondents say they sometimes skip meals to cope with rising food prices, while others have resorted to using food banks.
Adam French, Consumer Rights Expert at Which?, says that more help is needed to help those struggling. He explains: “Our research shows millions of households have missed or defaulted on payments this month alone. This is hugely concerning as it suggests the cost of living crisis is already starting to hit hard – especially for those on lower incomes.
“The government and businesses must urgently put measures in place to support those struggling to make ends meet. People should not be saddled with spiralling debts because of circumstances completely outside their control.”
Are you worried about the possible impact of rising prices? See our article that provides three tips to help with the rising cost of living.
