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Chancellor must support households in the cost of living crisis

The relentless cost of living crisis is already putting huge pressure on household finances. With price hikes and inflation only set to increase, the government must do more.

Households are facing the biggest cost of living crisis in a generation.

Which?’s monthly Consumer Insight Tracker has found financial difficulty is continuing to grow among households. More than half (54%) of the 2,000 people we spoke to say their household has had to make an adjustment – such as cutting back on meals or dipping into savings – to cover essential spending in the last month.

Worryingly, an estimated 2.1 million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill in the last month. Rent and bills were the most common types of missed payment, with 6% of renters missing their rent payment and 5% of all consumers saying their household had missed a bill payment.

Six in 10 (61%) of those who reported missing a bill payment said they had missed more than one – highlighting the extreme pressure that some households are under during the cost of living crisis.

Helping households ease the squeeze

We’ve redoubled our efforts to get you the essential money-saving advice and tips to weather this crisis, but we know that alone will not be enough to help the people most in need of support.

Ahead of the Spring Statement, the government and businesses must act urgently to support those who could quickly find themselves in serious financial trouble if the economic situation deteriorates further.

The Chancellor must show he is on the side of millions of households facing the biggest cost of living crisis in a generation by announcing immediate support for the most vulnerable and action to help those who could quickly find themselves in serious financial trouble if the economic situation deteriorates further.

Hiking bills

Firms have a role to play too, starting with appropriate standards of customer service and care to the most financially vulnerable throughout the cost of living crisis.

If a company is hiking bills, then they must provide transparent and clear information for consumers about the increases and how they will be affected.

Has your household spending changed? What support do you need or want to see? Let us know in the comments.

Comments

the government and businesses must act urgently to support those who could quickly find themselves in serious financial trouble if the economic situation deteriorates further.”.
Easily said but, if I may say so, a lazy comment. “Something must be done”. What do you suggest?

We are all, consumers, businesses, government, at the mercy of world events. In most cases, support for consumers simply comes from other consumers; through taxation. The wealthier generally benefit as much as the poorer. It is the latter who need the help from the former. The key is to identify those who need help and ensure monetary help is properly distributed.

”It could be any combination of financial aid, social tariffs, more breathing space, limits on price hikes, tax cuts…”.
“Social tariffs” – this is asking commercial entities to identify those in need. Are they equipped to do that? Should they be given the personal information to decide that? If they are they are then asked to subsidise one group of customers from the payments made by others. I think that job is for government, through benefits, where the information should reside.
“More breathing space” – effectively using one group of customers subsidise another, with the possibility of default and increased debt. Again, surely a role properly taken on by the state, not by all the customers of the business?
“Limit on price hikes”. Using the word “hike” suggests profiteering. I agree this should be prevented. However, price “increases” for essential goods are likely to be caused by market conditions, passing on cost increases further down the chain. Is it suggested these are controlled by government?
“Tax cuts” will benefit many who do not need helping.

I am totally in favour of finding ways to help those genuinely in need and unable to pay for the basic essentials. But to be done responsibly (using all consumers and taxpayers’ hard earned money to best effect) it needs to be carefully targeted to ensure it only goes to those in need. The above generally seems not effectively targeted, unless you can expand on the suggestions to show how it is.

I should like to know whether Which? will support means testing to establish which households are “the most vulnerable” and to ensure they get priority over those who have ended up “in serious financial trouble” due to their own poor money management.

It is very laudable that Which? has redoubled its efforts “to get you the essential money-saving advice and tips to weather this crisis, but we know that alone will not be enough to help the people most in need of support”.

Thankfully, access to Which?’s advice is mainly free of charge, but those who don’t read the magazine [which no doubt includes almost all of the most vulnerable] probably don’t think of Which? as a source of help. I should therefore like to suggest that Which? advertises and promotes its outreach activity through channels and media that will predominately be seen by that target audience. Otherwise this is just a middle-class consumer body assuaging its conscience and talking to the better off.

I am glad to hear it, but many of the people in the target demographic that I encounter are completely unaware or just don’t feel it connects with them. I am sure Which? is doing its best, but that might not be good enough.

What about my opening question on Which?’s point of view about means testing?

Adam – That has always been the popular argument against means testing, but I don’t believe the country can now afford the alternative, which is indiscriminate subsidy at enormous cost and the imprecise delivery of help.

Education and knowledge of entitlements have moved on a lot in recent years and older generations, who were too proud to claim, have mainly passed on. Universal Credit has collected a number of benefits together in a single wrapper, benefits are now paid into bank accounts, and the stigma of being known as a welfare claimant has largely evaporated. I think it’s time to review public subsistence policy and make a radical overhaul. It should be part of any levelling-up agenda.

Adam, Which? are certainly recognised for their efforts relating to rogue ‘Home Appliance Warranty companies’ resulting in the ICO issuing substantial fines to some of the companies involved.

It’s also encouraging to hear the ICO are continuing to investigate further companies that appear to be operating in the same way and I hope this leads to further fines.

Holding these rogue companies accountable has been a multi-agency effort and the contribution by Which? is greatly appreciated.

Spring Statement 2022: what it means for your money

Read more: https://www.which.co.uk/news/2022/03/spring-statement-2022-what-it-means-for-your-money/ – Which?

Which? comments on Dairy Milk sharing bars shrinking in size by 10%
29 March 2022

Natalie Hitchins, Which? Head of Home Products and Services, said:

“Shoppers bear the brunt of the rising cost of living when companies reduce the size of popular products while keeping prices stable. Taken together, these practices can have a real impact at a time when many households are already facing a severe squeeze on their finances.
https://press.which.co.uk/whichstatements/which-comments-on-dairy-milk-sharing-bars-shrinking-in-size-by-10/

Is citing a chocolate bar a good example of the effects of the increase in the cost of living? And is it better to reduce the size or increase the price when costs have increased? We all face increased costs and need to concentrate on the essentials if money is tight. We can do without chocolate bars.

Such a press release rather trivialises a serious problem for many.

Paul says:
29 March 2022

The chancellors recent help with the cost of living seems poorly thought out. Selecting a target audience for help based upon council tax band (all those up to band D) doesn’t get help to those who need it. You could have a state pensioner couple who have spent their life saving and spending that on their home.. No help for you if you’re in the bottom of band E even with a mortgage still to pay. On a salary of 250,000 as year with a band D in the North West? Here you go. Now there’s talk of targeting further help via council tax banding.
Surely it is more equitable to base help on income. Everyone has a tax return, and the mechanism to refund overpayment is already in place. This is the mechanism used in the USA where stimulus cheques are sent to the individual. It also stops indirect help being absorbed by the intermediaries leaving the supposed benificiary with nothing.
We also get the misdirects. The cut in petrol tax will cost the treasury 5bn. Really? The increased take in VAT due to price increase dwarfs that cut. They’re still quids in.

As I understand it, the £150 council tax rebate is actually just a vehicle used by the government to help households pay their energy bills by getting the local authorities to transfer that sum to the council taxpayer in Bands A-D properties but it is a crude method and, as Paul says above, not properly thought through.

The council tax banding system is an imperfect mechanism for administering these sort of government handouts because it relies on historic property assessments, inconsistent valuations across the country, and takes no account of the needs and means of the recipients.

Council tax collecting authorities will be paying the £150 to eligible householders direct to their bank accounts in the case of those paying by direct debit and, presumably, by cheque or bank transfer to others. The only virtue of this process is that it should be relatively quick although it will necessarily involve a considerable amount of administration.

I have not seen any information on how the other element in this package, the energy bill loan of £200, is going to be processed. Presumably this will be paid to all households on a domestic electricity tariff by their current supplier by way of a credit on their bill. It will then be clawed back in years 2-5 at £50 a year. But over that period many householders might change supplier, some more suppliers might fold, and some consumers might die and leave their estate with an awkward liability for their family or the executor/administrator to sort out. Additionally some customers might have different suppliers for gas and electricity and confusion could arise as to which supplier provides the loan and recovers the repayments. It would make sense for the loan and repayments to be managed entirely by the electricity suppliers because almost every home consumes electricity but a significant proportion do not have mains gas. I have not seen any reference to how this loan is actually going to be paid; will it just be a credit on the next electricity bill? Easy if the consumer pays by direct debit, but what if the electricity bill is less than the loan – will it come with a cheque or bank transfer?

Given the muddle that electricity suppliers seem to get into trying to manage FIT payments for solar energy, settling credits accruing on electricity bills, setting appropriate levels for monthly payments within annual contracts, and transferring customer credits across when they change suppliers [either by their own volition or by an enforced transfer following a company collapse], I would not trust the companies to manage these loans properly and that it will become an administrative nightmare.

If paying the same price for a shrinking chocolate bar will assist in reducing the number of obese people in the country, then it is not entirely an issue worthy of pursuing at such a time when essential nutrition is becoming more unaffordable due to rising energy costs, NHS contributions, and ever increasing council tax revenues.

Most people are all too aware there is no such thing as a free lunch, and government is not giving anything away without some form of recompense to replace the enormous cost of Brexit recovery and reconstruction, immediately followed by the expense incurred during a global pandemic. Eventually, money borrowed with its accrued interest, needs to be repaid with the inevitable hardship and sacrifice that ensues.

On the subject of even distribution of government handouts to those in real need, anyone who has been confronted with a forty page means tested booklet will understand how incredibly difficult it is to receive any form of benefit without experiencing the indignity, the humiliation and stigma of disclosing just about every facet of their personal circumstances to a government accredited financial institution who, at the end of their day will perceive you as just another number on their list of statutory freeloaders out to procure a few quid to feed their indolent lifestyle. Many will prefer to rely on food banks and charities to see them through a difficult time in their lives, often through illness, redundancy or bereavement, rather than apply for government handouts.

The £200 involuntary energy ‘loan’ will earn the governments treasury large returns from students leaving home to study and family breakups who will end up paying £400 back instead of £200 during the 5 year payback period. If you are serious about signing the petition which has now almost reached the 10,000 mark for government consideration, there is still time to log-on to:

https://petition.parliament.uk/petitions/608007

Certainly energy consumers that move home before the £200 loan is repaid will need to make sure they don’t repay double; some cunning people might end up not repaying it at all, perhaps, if they also change suppliers during the course of a home move.

Universal Credit is a means tested benefit. 5.8 million people are in receipt of it, most of whom are not in employment. I think there would be considerable overlap with people needing help with their energy bills.

I don’t know how long the application form is for Universal Credit is, but apart from practical and ID requirements, UC claimants need to provide information on –
>their housing [e.g. how much rent they pay]
>their earnings [e.g. payslips]
>any disability or health condition that affects their work
>how much they pay for childcare if they want help with childcare costs
>their savings and any investments [e.g. shares or a property that they rent out]

As with all means tested benefits, help with the application is available from qualified advisers either by phone or at the relevant office. Many charities and welfare organisations also help people to make their claims.

If £150 is automatically deducted from council tax in bands A – D, the annual tax increase will most probably cancel out any monies intended to compensate for the predicted huge hike in energy costs.

Likewise, if the £200 ‘loan’ is repaid by an automatic annual deduction of £40 on energy bills over five years, this is an infringement of a consumers right to manage their own monetary affairs. I fail to understand how anyone could avoid paying this if it is automatically deducted from their energy account.

I do not believe anyone will actually receive any cash in hand, or any additional payment to their bank accounts. Local councils are already implementing cut backs in local services, so can we now look forward to even more in the immediate future?

I am well used to managing my own financial affairs and helping my immediate family out when the need arises, so I don’t need the government to intervene when it suits their politically incentivised systems and policies.

I agree it is perplexing, Beryl, and, unfortunately, not easily explained.

The £150 that people in council tax bands A-D are getting from local authorities is extra money that the government is transferring to them plus some additional funds for further relief for hardship cases outside that eligibility range. It is intended as part of the measures to help with energy bills, not as part-payment of council tax.

Councils will start paying the rebate in April 2022. It should not impact on the budgeted council expenditure for the year ahead so there should be no further reduction in services. The maximum allowable increase in council tax in England for 2022-23 is 1.99%. Authorities in England with adult social care responsibilities are also able to set an additional precept on their portion of the council tax of up to 3% ringfenced for that purpose.

The extent to which increases in council tax will cancel out the benefit of the £150 council tax rebate for energy cost relief will depend on both the size of both the council tax bill and the energy bill. People in lower band properties will receive proportionately higher relief than those in higher bands but the financial and economic performance of each authority will also have a major influence on the amount to be paid.

The percentage increases in council tax payable will vary from authority to authority within the flexibilities determined by the government. Single person households are relieved of 25% of such increases.

The Which? news item referenced below, dated yesterday, outlines the overall 2022-23 council tax situation for England but it oversimplifies the position because of the different proportions of each combined council tax bill made up by the different charging authorities and their different rates of increase. Council tax Band D is conventionally taken as the comparison point; the tax impact per household tapers downwards in the lower bands and upwards in the higher bands.

The combined council tax bill comprises up to four separate components each levied at its own rate —
a. the county council or other first tier authority precept, which might typically represent 75% of the total bill,
b. the adult social care precept,
c. the district council tax rate which incorporates any relevant parish or town council tax rates [these, and their proportionate value, differ across each district and only apply to the parish or town in which the property is located] which could typically represent 12% of the total bill, and
d. the police and crime commissioner levy which could typically be 13%.
Since there is no uniform rate of increase across all these elements, the proportions of which vary between themselves and across authorities, estimating the rise in any district council is quite difficult unless the proportion of the district tax payable to the specific parish or town council and its own rate of increase are also known.

The Which? article indicates that the highest overall combined council tax increase will be around 5% for the year starting tomorrow. See —
https://www.which.co.uk/news/2022/03/council-tax-rates-for-2022-23-will-your-bill-be-more-expensive-from-april/

Like Beryl, I am capable of managing my own financial affairs and do not want the £200 loan. There is still time for the government to give us a choice about whether or not we want it.

I don’t want a loan either. I think this scheme has problems written all over it and it certainly won’t achieve much in the way of targeting help on where it is most needed. The £150 paid out by local councils will probably just be absorbed into general expenditure in many cases.

It seems from what our council is saying that it will only be paid into householders’ bank accounts and if the council has not already got bank account details it will be writing to people asking to let them have them so the money can be paid in by bank transfer. Many will not be comfortable with that and quite a number might not have a bank account. There is no reference to any other means of receiving the money the government is providing. In some households the person who pays the council tax is not necessarily the one who settles the energy bills so difficulties could arise in those circumstances.

These indiscriminate payments are a nonsense. Council tax charges are no reflection of someone’s need. If help with energy is required it should be a direct reduction on an energy bill, but only for those classed as in need and not a loan but a subsidy.

With a typical energy bill increasing by around £600 a year in April, and more increases likely to come in October, the average user will be contributing an extra £30 a year to the Treasury in VAT – money for nothing. So the generosity is rather false. I’d rather all those extra £30s were shared out among those most in need. That could be done, crudely but better than the present charade, by a direct reduction in the energy bills of anyone who also is entitled to Universal Credit.

I entirely agree. I don’t want to borrow money in order to pay energy bills because it will not provide any financial help to us, and for many people another loan is possibly the last thing they want on top of their other outgoings. The fact that there will be no interest charge does not make it more acceptable; that’s just a thin layer of political varnish. The administrative cost of paying out and then collecting in these loans is not inconsiderable and could be avoided in a large number of cases. The recovery of the loans might come at an inconvenient time as well. It is ridiculous that consumers have no say in whether or not they wish to become a borrower.

It did occur to me that underlying this loan could be a crude political stunt. The repayment period runs beyond the latest date by which the next general election must take place. The government might be thinking that in a couple of years’ time it could write-off the loans as a re-election bonus. A more realistic scenario is that energy bills will remain at high levels indefinitely and people will require further relief in the form of new loans or subsidies piling on top of the one now in the pipeline. It would be so easy to help those needing support directly via the Universal Credit mechanism which is already a bespoke benefit.

The A – D council tax band is a smart political move, as not everyone living in this tax category is in dire need of an extra £150 towards the proposed increase in their energy bills.

Politicians will deliberately complicate the issue in order to confuse consumers into believing they are receiving something for nothing. It’s a popular psychological conundrum used by political parties to gain public votes at the ballot box.

Why not just simplify it and give it to the 5.8 million on Universal Credit? If the government genuinely want to help everyone equally, then they should abandon VAT on all domestic energy bills.

I agree with that, Beryl. And the VAT should come off LPG and domestic heating oil as well to help people not on the gas grid. I think the environmental levies on energy bills should also be suspended for the time being.

My view is that the electricity, gas [mains and LPG] and oil supply industries would be better able to manage this form of relief via VAT and/or subsidies directly with their own customers than the electricity supply industry will be able to deal with loans on its own. The mains gas and electricity supply industry is still in a muddle after the collapse of so many companies over the last year and the enforced reallocation of customers to different suppliers. Even the OVO/SSE tie-up has not gone smoothly even though it was a mutually agreed move for OVO to take over SSE’s domestic business and both companies remain solvent.

Billing is the Achilles heel of utility companies: their products are indistinguishable from one fuel supplier to another, so the tariff is the unique selling point and customer service is the critical value added feature.

I imagine not everyone on Universal Credit pays energy bills? The money should go to pay the bill.

The problem with reducing or abolishing one tax – like fuel duty and vat on energy – is that to continue to fund public services the lost revenue has to be found elsewhere. Perhaps by removing the higher rates of tax relief on higher earners’ pension contributions.

Michael Whittaker says:
4 May 2022

I worry about the effects of inflation – price increases in essential goods and services, particularly unprecedented energy costs – on the least well-off and probably most vulnerable, those on fixed benefits. I’m a fairly active pensioner, reliable on the state for my income, and have begun a regime of belt-tightening – turning off central heating, being restrictive on the energy I use – just about managing to keep my head above the water – but worry about those elderly folks, perhaps more in need of constant warmth than I for their health. Again, those people who struggle week to week – the sick and the unemployed for instance – on paltry benefit payments, it must be extremely difficult for them to keep out of debt!
This Government must do much more to financially aid those in the most dire circumstances, but don’t suppose they really care.

David Parker says:
4 May 2022

It is essential to carefully select those who are in most need rather than have a free for all. This will enable there to be more money in the pot to those in true need. There are without doubt too many people who get help who do not really need it.

I remember well the cost of living crisis and inflation rate in the mid-1970’s when I was buying a property. Inflation peaked at 26.9% in August 1975, was 14.3% in September 1976, 17.7% in June 1977 and peaked again at 21.9% on May 1980. The more muscular trade unions were obtaining pay rises for their members of 30% in 1975.

The indices have changed over the years and CPI has replaced RPI as the leading measure for many purposes [RPI is now around 9% and rising].

I believe that proportionately to our incomes the population in those days generally had much less capacity for discretionary spending than it does today, but there were far fewer single-person households and somehow people managed to get by although there was multiple deprivation in many areas and then massive unemployment.

It’s probably not fair to draw comparisons when circumstances have differed so much across the period.

Mr R Rattey says:
5 May 2022

I don’t think that anyone in the cabinet or any backbench MPs really understand about the ordinary, non-priviliged people in this country and how they are forced to struggle to live. Boris Johnson’s flippant response to the pensioner who spends her day using buses is a classic example. Also the chancellor’s and his wife’s financial dealings, though not illegal are immoral. Highly paid entertainers, sportsmen, journalists and other luvvies also fail to understand or care about the ordinary people. Also the really wealthy are not feeling the pinch, nor are they bearing an equal financial burden. What else can I moan about? The state of our roads, railways, bus services, immigration, the NHS and our public services. This government have complately mis-managed this country from top to bottom!

Bruce Geere says:
6 May 2022

I feel that the chancellor has ignored using our welfare benefit system to directly help those most in need. If I was cynical I might say that folk on welfare are not traditional tory voters! We have a reasonably effective, if grossly over-complicated, benefits system; why doesn’t he use it?

Bruce — I think the £150 council tax refund process was quite a good way of targeting that particular relief although I think the arbitrary cut-off at Band D properties was a crude mechanism because the historic rateable value of properties is not a reliable indicator of means or needs.

I don’t think the loans of £200 to be administered by the energy suppliers is a good way of providing useful relief for many reasons that have been expressed elsewhere and I think that process will become mired in complications and anomalies when it takes effect in September.

Overall I agree that the welfare benefit system would provide a better vehicle for delivering financial aid but there are millions of people not included in any welfare payment process who will be facing hardship. The current mechanism of making winter fuel payments indiscriminately to all people in receipt of the state retirement pension can only be justified if it would cost more overall make such a low value benefit means related. I think taking VAT off energy bills universally would be a better way of providing specific financial relief related to energy but would, of course, benefit high energy consumers the most which might not be the desired objective.

All these measures involve recycling our own money through various mechanisms that at each stage lead to a drop in effectiveness and administrative abstraction. Unless we can move towards a comprehensive integrated tax and benefit system based on proper assessments of both needs and means we will constantly have overlapping systems and people paying more than they should with one hand and getting a rebate with the other. This entails a huge administrative cost and is a recipe for confusion and inequity. Cliff-edge interfaces between the different assessment scales add to their complexity