It feels like Britons have jumped out of the pan, only to fall straight into the fire as a major cost of living crisis looms over the nation. With gas prices rising steadily throughout the winter and totals at the till creeping up with each weekly shop, millions of people are facing an “eat or heat” choice – forced to choose between giving up a meal or heating their home as winter plods on.
According to the Office for National Statistics (ONS), two thirds (66 per cent) of adults in Britain have reported their cost of living increased in the past month, with rising energy prices fuelling the surge. The wholesale price of gas in January 2022 was almost four times higher than in early 2021, with limited stocks of natural gas and supply problems driving the prices of gas up globally.
It doesn’t stop there, as the energy price cap is set to rise even further. Ofgem announced that the energy price cap will rise by 54 per cent from 1 April 2022, which is expected to add £693 per year to the average household bill. The price cap, which was intended to prevent households from being ripped off by energy companies, was pushed up by 12 per cent in October.
In addition, the UK’s rate of inflation has hit an almost-30-year high, with the latest figures from the ONS showing the consumer price index for inflation increased from 5.1 per cent in November. It is currently at the highest rate since March 1992, when inflation stood at 7.1 per cent.
With the cost of everything increasing, debt charity StepChange has warned that more people will fall into debt as they struggle to pay bills and other commitments. The organisation said on 3 February that “cost of living pressures” entered the top five reasons for debt among people turning to it for help in November 2021, and has remained there since.
So how can people cope with rising costs and what help is available?
It’s easy to feel panicky and overwhelmed by the headlines right now, which are saturated by the cost of living crisis. It is a serious issue, and heralds a “concerning time for many households”, Nick Hill, money expert at the Money and Pensions Service (MAPS), tells The Independent.
“One in three [households] say thinking about their financial situation makes them feel worried, and nearly half admit they don’t feel confident in managing their money day to day,” he says.
“While we can’t ignore the challenges people are facing, it’s important to remember you are not alone. It’s normal to experience money worries, but it‘s better to face them rather than ignore them.”
However, if you are experiencing feelings of anxiety and panic because of the news, it could be helpful for you to turn off the news and focus on your own financial situation. You may find that you’re not in as much trouble as you think you are, Jasmine Birtles of MoneyMagpie says.
Birtles, who founded the financial advice website, tells The Independent: “We have had a lot of people get in touch with MoneyMagpie panicking about the state of things, understandable. It could be genuinely helpful to switch off the TV, take a deep breath, and take a look at your own circumstances because it’s quite possible that they’re not as bad as has been suggested.”
Both Hill and finance coach Bola Sol recommend people start learning how to budget in order to manage their money better.
Sol, who authored How To Save It, a guide to fixing finances, tells The Independent: “I would always say to start with budgeting. At this point, manual budgets – like spreadsheets or using notes on your phone – are not enough.
“Use an app that’s linked to your bank account so that you are constantly tracking your money and can see clearly what’s coming in and what’s going out. Apps like Emma will show you where some bills have gone up and comparisons of where you can get cheaper services.
“Once you understand your spending, you can re-prioritise things. Maybe push back on buying lunches, or reduce buying takeaways to twice a week, for example.”
Hill adds: “It doesn’t have to be hard to get started [on budgeting] – there are plenty of free budgeting tools available online, like the MoneyHelper Budget Planner, which will help you understand exactly where your money is being spent, and how much you’ve got coming in.”
Constantly reviewing your budget is one of the most “essential” things you can do to make an impact on your savings. Incoming and outgoing transactions fluctuate depending on our needs, so it’s good to stay on top of them, Hill says.
“Checking your direct debits and standing orders will allow you to spot where you might be able to cut back on costs. If you’re not using a particular subscription, check if there are any exit penalties and cancel where you can.
“If your financial situation allows you to, you could even put that money towards your savings each month – every little bit helps.”