Scottish families face ‘cost-of-living catastrophe’ in 2022, says think-tank

Millions of families are facing a “cost-of-living catastrophe” due to soaring energy bills and rising taxes, an economic think-tank has warned.

The Resolution Foundation (RF) said from next April families would typically face a £1,200-a-year hit to their incomes as the energy price cap is raised and a 1.25 per cent increase in National Insurance contributions (NICs) comes into effect.

At the same time rising inflation – forecast to peak in the spring at 0.6 per cent – means real pay levels are set to stagnate, with real wages next Christmas no higher than they are this year.

The foundation’s chief executive, Torsten Bell, said the “squeeze” on living standards is likely to be so severe that Chancellor Rishi Sunak will come under intense pressure to act to alleviate the economic pain. The latest warning comes amid fears among Tory MPs that a new year “cost-of-living crisis” will further undermine voter support for the UK Government that is already badly dented by reports of Downing Street parties in breach of Covid rules.

A gas ring on a home cooker. Picture: Lauren Hurley/PA Wire

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The RF said the peak of the “squeeze” looked set to be in April, when the cap on energy bills is expected to rise by around £500 a year while energy firm failures would add another £100 tobills.

The price rise will disproportionately affect low-income families who spend more of their income o n energy. It is expected to account for 12 per cent of the income of the poorest households compared with 8.5 per cent now.

At the same time, the RF said the freeze to income-tax thresholds and the 1.25 per cent increase in personal NICs would cost the average household £600 a year. For families in the top half of the income distribution, the NIC rise alone would lift tax bills by an average of £750. Meanwhile, the RF said real wages, which were flat in October, had “almost certainly” started to fall and would not pick up again until the final three months of 2022, leaving real pay just 0.1 per cent higher than it was at the start of the year. The overall picture is likely to be one of prices surging and pay packets stagnating,” he said.

A Government spokesman said ministers had put in place £4.2 billion worth of “decisive action” to help support families with the cost of living.

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