Part two: The cost of living crisis

In part one of our blog on the cost of living crisis we looked into some of the causes and the additional areas we will see key price rises during 2022. This blog looks into what these changes will practically mean for UK homes and what solutions are needed. For UK homes that faced disrupted incomes during the pandemic, the current crisis could not have arrived at a worse time.

Like with any crisis that impacts our finances, households with low or variable incomes will feel the biggest impact. Recent research from the Joseph Rowntree Foundation notes that low income homes are expected to spend 18% of their post tax income on energy. The foundation warns that without additional support, people already in poverty are likely to find a sharp increase in energy bills extremely difficult or impossible to cope with. 

It is clear that both fiscal and monetary policy responses are required to stem inflation but the UK’s economic recovery complicates the matter. Inflation is expected to moderate closer to the target rate of 2% by 2024 as pandemic related supply issues subside, and central banks worldwide are cautious to raise interest rates and reduce quantitative easing too aggressively. Striking the balance between taming inflation and encouraging growth is a tough path to walk. To the degree that inflation remains transitory, central banks will allow it to run its course. It makes sense for government policy to provide financial relief to those households least able to absorb the rising costs.

As the current cost of living crisis loomed, several fiscal and monetary tools were floated as potential solutions to ease the pain on consumers, but the UK government and regulators have been slow to act until the rising energy price cap forced their hand. 

Last week’s belated announcement by the government covered a range of support measures costing £9bn intended to ‘cushion the financial blow’. They include a rebate on council tax worth £150 for those in categories A to D, and an interest free £200 energy bill rebate, to be charged back over the preceding 4 years at £50 per year. The government has also increased eligibility for the £140 Warm Home Discount scheme intended to reach an additional 3m homes. There have also been suggestions about delaying the planned National Insurance tax increase of 1.25%, but this was ruled out in recent weeks. 

Across Europe, France, Netherlands and Spain all reduced or removed taxes on energy bills in Q4 2021 when the wholesale prices pointed to tough months ahead. They have also provided additional benefits to low income homes, with France forcing nationalised energy champion EDF to sell nuclear power at below market rates, costing it around £7bn.

In contrast the UK’s response has been slow and recent stats reinforce that households are already feeling the pain whether from energy bills or elsewhere. In January, Citizens Advice saw record numbers of homes seeking financial support and requesting access to food bank services. ONS survey data showed 1 in 5 adults disclosed trouble paying their bills. In December, Bank of England data shows households are already reducing deposits and increasing personal debt to levels not seen since early in the pandemic.  Whether the government’s support measures make a sustainable difference remains to be seen.

For banks and personal finance management apps, there are a range of evolving features that can be deployed to help consumers navigate the ongoing crisis. In the absence of real government financial support, various forms of credit, from overdrafts to BNPL can be used to help consumers weather bumpy months, while improved credit scores can be achieved through rent recognition and other credit building initiatives. Budgeting tools can help consumers get a handle on monthly outgoings, identify areas for savings and set goals to meet these. 

Youtility can help bank customers engage with key household subscriptions and discover if savings are available from suppliers. Our platform has been built to ensure taking action to unlock those savings is hyper personalised and streamlined to ensure the best outcomes for partners and their  customers. 

For millions of consumers, the cost of living crisis will define 2022 and therefore we will continue to work hard to deliver technology solutions for our banking and fintech clients that can help them support their customers through this extremely challenging financial period.

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