A wave of rising bills and tax hikes coming into effect in April will leave a family on a £50,000 annual income almost £700 a year worse off, according to a study of the damaging effects of the cost of living crisis.
Unions have warned that an increase in the minimum wage will not be enough to offset the pressure on hard-pressed families. Households at the bottom of the income scale will face the hardest squeeze relatively, according a study by the CEBR economic consultancy undertaken for the Guardian.
It details how bills for dental work, prescriptions, water, broadband and car tax will jump as government departments and regulated companies are allowed to impose inflation-busting rises. Average council tax bills will increase by £99 from 1 April, topping £2,000 for the first time.
The hikes come as households face an unprecedented squeeze on their finances, as wage growth in the UK lags behind headline inflation of 10.4%.
It emerged this week that supermarket price inflation in the UK had hit another record high of 17.5%, lifting the average annual household grocery bill by £837 to £5,617.
Broadband and mobile phone customers face big “mid-contract” increases – in many cases of between 14% and 17% – in their monthly bills from April.
BT, TalkTalk, Three and Vodafone are among the big telecoms suppliers that are contractually allowed to increase their bills in line with one of the December, January or February official inflation rates, plus a further 3% to 3.9% on top.
For millions of O2 and Virgin Mobile customers, it means an inflation-busting increase of up to 17.3% in their bills for making calls, sending texts and using data.
“Millions of people will now have to stomach inflation-busting price hikes on their mobile and broadband contracts, totalling an average of almost £90 more a year,” said Matthew Upton, the director of policy at Citizens Advice. “We called on these firms to support their customers during this uniquely challenging time, but they didn’t listen. Instead, they’re pushing ahead.”
The scale of the cut in disposable incomes is magnified by a freeze on income tax thresholds, which will drag hundreds of thousands of people into higher tax bands over the next year.
Tax bands usually rise in line with inflation, but the chancellor, Jeremy Hunt, imposed a five-year moratorium in his March budget on further increases from April.
The analysis by the CEBR examined the extra costs faced by three typical households with incomes at the tax thresholds – £12,570, £50,270 and £125,140.
Those with incomes of £12,570 a year will see their tax and bills increase by a minimum of £29 a month, or £348 a year. Households with an income of £50,270 are facing a £684 rise, while those with a £125,140 income will be in for higher annual costs of £936.
Meanwhile, the £400 energy bills discount that households enjoyed over the winter ends in April – so they will in effect lose out on up to £67 a month.
However, households will be spared a separate £500 increase to annual energy bills that was originally planned from 1 April – from 2,500 to £3,000 a year – after the government scrapped plans to increase the energy price guarantee.
“Our estimates suggest that monthly disposable incomes are expected to drop by £29, £57 and £78 respectively for each of the three households from March 2023 to April 2023,” said Pushpin Singh, a CEBR economist.
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“These are due to the following: fiscal drag from fixed income tax thresholds, higher spending on essentials including food and water, an uptick in council tax, along with the withdrawal of household energy support in the form of the energy bills support scheme.”
Singh said there would be some respite for households later this year and into next year from “an expected easing in inflation, not least due to a purported reduction in energy bills come July”.
The national minimum wage will rise by nearly 10% to £10.42 for workers aged 23 and over in April, but the TUC said the £67-a-month cut in energy bills support combined with soaring food prices meant families would not feel better off.
“Tomorrow’s below-inflation increase to the minimum wage is not going to lift the pressure on hard-pressed families,” said Paul Nowak, the TUC general secretary. “Inflation may fall over the next year. But make no mistake, the cost of living nightmare is far from over. Millions are still living wage packet to wage packet.”
He said the minimum wage should be lifted to £15 an hour “as soon as possible”.
As well as the April bill increases, households are coming under further pressure from higher rental and mortgage costs. Higher mortgage rates are expected to hit about 1.5m households this year, adding an extra £250 a month, or £3,000 a year, to their payments on a typical mortgage.
Labour has calculated separately that the cost of everyday essentials has gone up by nearly £3,500 over the last three years, citing data from the Office for National Statistics.
The shadow chancellor, Rachel Reeves, said the figures were “a mark of 13 years of Tory failure that have left families worse off, public services on their knees and brilliant British businesses on the brink”.
Labour said that since December 2019, housing, fuel and power costs had gone up by £1,480, while food and non-alcoholic drinks had increased by £700. Transports costs were up £800, household goods and services had risen by £360, and clothing and footwear costs had gone up by £140.