Households are facing their biggest squeeze for a decade in 2022 as inflation soars and tax hikes bite.
Late 2021 saw prices surge as the cost of energy and fuel rocketed. Inflation hit 5.1 per cent and is now predicted to reach 6 per cent in the New Year.
Retired people face a difficult year as the state pension will only rise 3.1 per cent, while many will have pensions that don’t keep pace with inflation.
The Bank of England is also tipped to keep raising the base rate, meaning mortgages will get more expensive for millions. Yet, at the same time, interest rates paid on savings are still pitifully low — leaving nest eggs savaged by inflation.
Charity The Resolution Foundation warns that 2022 will be the ‘Year of the Big Squeeze’ with families expected to take a £1,200 annual hit on income from April.
And it seems nobody will escape unscathed. Lower-income families, who spend a higher proportion of their salary on energy, will be hit hardest by rising bills, while wealthier households will be struck by tax hikes.
Sarah Coles, senior personal finance analyst at investment service Hargreaves Lansdown, insists: ‘2022 is a year of change — but not in a good way.
Most of the financial developments in the pipeline will leave us worse off by the time we struggle to the end of next year.
‘It’s not all bad news though. Buried among the price rises are a few more positive changes, including the end of the loyalty penalty for insurance customers, lower water bills and easing the admin burden for families of those who pass away.
‘Unfortunately, for most of us the bad outweighs the good so we need to plan ahead and be prepared for the worst 2022 can throw at us.’
Here, Money Mail sets out the dates on which you’ll start to feel the pinch…
New year, new rules
From January 1, your insurance company has to offer you the same deal it gives new customers when it sends you a renewal quote for your home or car cover.
In the past, insurers saved much better deals to lure in new customers, while loyal policyholders were forced to pay more every year.
It is good news for those who stick with the same insurer each year but could be the end of very cheap deals for savvy switchers.
City watchdog the Financial Conduct Authority says six million loyal car and home insurance policyholders would have saved £1.2 billion in 2018 if they had paid the average price for their policies — amounting to £200 each.
The New Year also brings about a tweak to the rules which will mean there is less paperwork for thousands of people with no inheritance tax to pay — sparing 230,000 of us extra admin.
Interest rate threat
When the Bank of England’s monetary policy committee meets in February the base rate could rise again — sending the cost of borrowing up for millions.
It was hiked from 0.1 per cent to 0.25 per cent this month. Experts fear mortgage and credit card rates will rise yet banks are less likely to pass on rate increases to savers.
If the base rate rises to 1 per cent, borrowers with a typical £150,000, 25-year mortgage, on a standard variable rate of 3.59 per cent, would pay an extra £75 a month, or £900 a year, according to broker L&C. Those with £450,000 loans will pay £2,688 a year more.