Millions of families face cost of living crisis beyond winter, experts warn

Business Secretary Kwasi Kwarteng admitted the double whammy of rising gas prices and the looming £20-a-week cut to Universal Credit was a “difficult situation” as a top think tank warned the UK would see the worst of inflation

Millions of families face a cost of living crisis stretching beyond the winter and well into next year.

A top think tank yesterday warned UK inflation would rise faster and last longer than any other advanced economy.

It came as a leading Cabinet Minister was forced to admit hard-up households are set to endure a “difficult winter”, with soaring energy bills and cuts to benefits.

Business Secretary Kwasi Kwarteng said the double whammy of rising gas prices and the looming £20-a-week cut to Universal Credit was a “difficult situation”.

Ex-Tory deputy prime minister Damian Green this week predicted a “big, global inflation problem” that is likely to become “the biggest political issue for the coming decade”.

And former Brexit Secretary David Davis said there was a risk of a “cost of living crisis” for new Tory voters.

Yet despite those warnings from within his own ranks, Boris Johnson insisted “Christmas is on” and denied people will struggle this winter.

Speaking in New York, the Prime Minister said: “I think this is a short-term problem caused by the energy problems, the spikes in gas prices, and like many of the other supply issues we are seeing, including food, are caused by the world economy waking up after a long time in this suspended animation caused by Covid.”

However, a report yesterday from the highly respected Organisation for Economic Co-operation and Development (OECD) highlighted issues specific to the UK, including this month’s ending of the furlough scheme.

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It now thinks the headline rate of inflation here will average 3.1% in 2022 – a 1.4 percentage point jump from what it forecast in May.

A quarter of the UK’s “price basket” of goods and services will rise by more than 4% next year, it said.

The Paris-based body also hiked its prediction for inflation this year.

It spells a further strain on millions of households’ finances, coming as a perfect storm of pressures from everything from higher shipping costs and raw materials to the lorry driver shortage are pushing up prices for an array of products and services.

Around 15 million households will see their energy bills rocket by at least 12% next months.

Other faces even bigger spikes on the back of a surge in wholesale energy costs.

Food prices, which have been falling, are now on the rise.

And the cost of everything from building materials to second hand cars -up by nearly a fifth since April – have been driven up by shortages of one kind or another.

Next year will pile more pressure on households, with National Insurance contributions rising by 1.25 percentage points next April to raise billions for both health and social care.

It will cost £180 a year for a worker on £24,100; £255 for a worker on £30,000; and £715 for a worker on £67,100.

At the same time, the income tax personal allowance will be frozen until 2026.

Millions of older people also missed out after the Tories went back on another manifesto pledge, this time by suspending the “triple lock” pledge that would have upped the state pension in line with earnings.

And millions of public sector workers are still struggling after seven years of pay freezes under Tory austerity.

Mr Kwarteng, pushed on slashing Universal Credit next month, told the BBC: “It’s a difficult situation, it could be a very difficult winter

“That’s why, as Energy Minister, I’m very focused on helping people that are fuel poor.”

The £20-a-week temporary rise was introduced at the start of the pandemic to help the poorest households through the crisis.

Shadow Chief Secretary to the Treasury Bridget Phillipson said: “In our country today working families face a sudden squeeze on living standards on a scale not seen for a generation.

“Incomes are coming down, prices are going up – especially energy prices – taxes are going up, rents are going up, childcare costs are going up, fuel costs are going up, rail fares are going up.

“The people of Britain face an extraordinary squeeze on their living standards this winter – not simply by chance, but because of the choices made by Conservative governments, this year, last year, and in the 10 years before.

“Now it is not some tragic, unforeseeable series of unhappy accidents that brought us here today. “It is a string of choices which this Government has made.”

Figures last week from the Office for National Statistics showed UK inflation jumped by a record amount in August.

The Consumer Prices Index – the Government’s preferred measure of living costs – leapt to 3.2%, the highest since early 2012, and up from 2% in July.

The Bank of England, which meets on Thursday on whether to raise interest rates, has forecast inflation will peak at 4% later this year and then fall.

Last month’s jump in living costs was largely blamed on it being compared with August last year, when the Government’s Eat Out to Help Out scheme was running.

After slumping 3.4% last year during the worst of the Covid-19 crisis, the OECD says world economy is on course to grow 5.7% this year.

While downgrading the UK, it still thinks our economy will grow by 6.7% this year and 5.2% in 2022.