Elizabeth Austin Assistant Accountant

The cost-of-living crisis deepened for many today, with the rise of the Energy Prices Cap to 54%, adding an average of £693 to energy bills over the next few months, taking the average bill to £1,971 with a further minimum increase of 20% likely when the cap is reviewed in October.

Secondly with the Bank of England’s decision to raise interest rates to 0.5% and their updated predictions that:

  • Inflation will surpass 7%.
  • A cut in the GDP forecast from 5% to 3.75%.
  • Real post tax labour income, the best measurement of standard of living, will fall by 2% this year - the largest fall since comparable records began in 1990.

The impact on households

All of this raises the pressures on households with the Chancellor trying to mitigate the worst by announcing, a £200 bill rebate in October for each household (which will have to be repaid £40 a year over 5 years) as well as a £150 rebate on council tax for those homes in bands A – D, costing the Treasury some £9bn.

These sums cover half of the announced increase. However, the eagle eyed will note that the £200 rebate is to be repaid, over 5 years, meaning that the true rebate to households is the £150 council tax rebate. With another rise due in October, it’s unclear what further assistance, if any, will be forthcoming.

The impact on business

The result of these pressures on households will have a huge impact on businesses. With bills rising, people have less disposable income.

Retailers and supermarkets are already raising concerns that further price rises on food and other essentials are inevitable, and they are urging the Government to act swiftly, and reduce business rates as a way of easing the pressure – a move the Government has resisted so far.

Businesses themselves are subject to some of the worst increases in energy bills. Since they are not subject to the price cap and so some are seeing a 4- or 5-fold increase in bills themselves. Taking these factors into account, it’s clear that 2022 is going to be an extremely challenging year for everyone.

It’s also worth bearing in mind that COVID hasn’t gone away, and businesses are still seeing an impact with staff absences due to self-isolation and some are still struggling to get back to pre-covid levels.

We haven’t yet seen a slowdown in investment or significant job losses, but if the current trend continues, and GDP suffers as the BOE suggests, it’s clear that difficult decisions will have to be taken by Government and businesses alike.

For more information on how Oldfield Advisory may be able to help you contact us at info@oldfieldadvisory.com or call 02476673160

Please note: This article is provided for information only and was correct as at time of writing (03/02/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.