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Daily Record
Daily Record
Lifestyle
Linda Howard

Millions of households set to lose £1,000 income over next 12 months when new tax year starts

Household incomes across Scotland and the rest of the UK could fall by 4 per cent for working age people in the financial year 2022 to 2023, marking the biggest squeeze since the mid-1970s, according to estimates in the Resolution Foundation's Living Standards Outlook for 2022.

The real incomes drop would represent a fall of £1,000 per household for non-pensioners - a scale of decline which would normally be associated with recessions - according to researchers.

However, the think-tank said the fall would have been worse without the £350 boost to incomes the UK Government's energy rebates package will give to millions of households.

Inflation is predicted to hit around 8% this spring - and the think-tank's report said "high inflation will make falling real household incomes the defining economic feature of 2022".

The Foundation also said the way benefits are uprated means putting poorer households through a "living standards rollercoaster".

Most working age benefits and the State Pension are set to rise by 3.1% in April - a time when inflation could have hit 8%.

Over the course of the year, this will mean a real-terms cut in the value of benefits of over £10 billion - more than the amount the UK Government spent on pandemic-related temporary benefit increases in 2020-21, the Foundation said.

It warned that high inflation this year would drive a much bigger increase in benefits next year and said that while benefit levels should end the "rollercoaster roughly where they began in real terms", this approach risks worsening the income shock to families this year.

The Foundation called for Chancellor Rishi Sunak to address the issue in his upcoming Spring Budget statement and increase benefits by 8.1% this year.

The increase could be reduced next year, it said.

Poverty levels and weak pay growth are issues that also need to be addressed, the Foundation said.

The Resolution Foundation is calling on Rishi Sunak to increase DWP benefits by 8.1% in his Spring Budget (Getty Images)

Adam Corlett, principal economist at the Resolution Foundation, said: "Britain has stepped out of a global pandemic and straight into a cost of living crisis.

"The tragic conflict in Ukraine is likely to further drive up the price of energy and other goods, and worsen the squeeze on incomes that families across Britain are facing. Inflation may even exceed the peak seen during the early 1990s, and household incomes are set for falls not seen outside of recessions.

"For millions of low and middle-income families, this inflation-driven squeeze will be made worse by a living standards rollercoaster. Working-age benefits and the state pension are due to be uprated by just 3.1% next month, at a time when inflation could be as high as 8%.

"The immediate priority should be for the Chancellor to revisit benefits uprating in his upcoming spring statement."

Four ways to make your money stretch further

To help families prepare for the upcoming hikes in household bills,

Maike Currie, investment director at Fidelity International, shares four ways to help make your money stretch a bit further to help combat the cost of living crisis.

1. Cut back where possible

Maike Currie advises: "To take control of your weekly or monthly spending, ensure you know exactly what you're paying for and you're getting the best value for money.

"Whether that means switching from named brands to supermarket own brands during the food shop, or checking your phone contracts, home broadband and insurance policies to make sure you are getting the best deal, it's worth putting the effort in if you can claw back any significant savings."

2. Ask for a pay rise

Fidelity found half (49%) of people have never asked for a pay rise - including 55 per cent of women.

"If you think it's time to speak to your manager about a pay rise or a promotion, keep an eye on the salaries offered for similar roles," Maike advises.

Online calculators will help indicate how much you would need for your earnings to keep up with inflation.

She added: "Don't forget that a pay rise isn't just about your take home pay. While discussing your options, remember benefits such as your workplace pension could boost your personal finances in the long-term as well."

3. Limit the impacts on your retirement pot

"If you are approaching retirement, it's important to review all your options," explains Maike.

"You might need to adjust some of your expectations, or decide to delay when you access your pension savings.

"If you do decide this is the best course of action, speak to your pension provider about your intentions. It means your pension savings will stay invested in the market for longer, giving your investments more time to grow - if markets rise."

4. Consider the long haul

"If you're in a position where you can put away some of your finances for the future, then it's worth considering a stocks and shares ISA or a general investment account," Maike said.

The value of stocks and shares can go down as well as up, and there has been market volatility recently against a backdrop of global economic and political uncertainties.

Maike added: "The key is to have a diversified portfolio and to not make any knee-jerk reactions. By investing, you will also benefit from something called compound growth - this means you earn interest on the money you have made from your investments, which can help you stay one step ahead of inflation."

To keep up to date with the cost of living crisis, join our Money Saving Scotland Facebook group here, follow Record Money on Twitter here, or subscribe to our twice weekly newsletter here.

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