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Boris Johnson under pressure to cut taxes, energy bills to prevent ‘cost of living catastrophe’

The Prime Minister (pictured today in Milton Keynes)  was urged to act as a think tank warned that next year will be the ‘year of the squeeze’, with households facing a hit of at least £1,200.

Boris Johnson faced pressure from across the political spectrum today to take action over soaring energy bills, tax rises, and inflation to avoid a ‘cost of living catastrophe’ whacking the Covid-weary British public in 2022.

According to Daily Mail, the Prime Minister was urged to act as a think tank warned that next year will be the ‘year of the squeeze’, with households facing a hit of at least £1,200.

The Resolution Foundation said that the public would face a choke point in April when the energy price cap is raised to account for eyewatering wholesale gas price increases, and a 1.25 percentage point increase in National Insurance contributions (NICs) comes into effect.

At the same time, inflation is projected to reach 6 per cent in the spring, meaning wages next Christmas could be no higher in real terms than they are today, it forecast.

Both Labour and rightwing Tory free marketeers demanded a reversal of new tax increases and held with energy bills. Shadow work and pensions secretary Jonathan Ashworth has said pensioners are facing the prospect of ‘shivering in the cold’ or ‘going without hot meals’ because of mounting living costs.

‘In fact, you’re going to have families worse off, you’re going to have pensioners who are now facing the prospect of shivering in the cold or going without hot meals because of these rising [bills].’ 

The Foundation says says rising gas prices could add at least £600 to family budgets when the energy price cap is reviewed in spring.

On top of this, households face higher taxes from April when National Insurance goes up by 1.25 percentage points to fund the NHS and social care – a rise that will affect middle-income earners more.

Most town halls are also expected to put up council tax by almost 3 per cent in the same month.

The think-tank said the combined impact of these factors would leave the average household at least £1,200 worse off – but warned that even this may be an under-estimate because energy bills could rise by more than expected.

Some experts have warned that surging wholesale gas prices could add as much as £1,000 to household bills.  

The Resolution Foundation has projected, based on Office for Budget Responsibility and Bank of England data, that wages are likely to fall in real terms for most of next year

Tory MP and former minister John Redwood tweeted: ‘Poor retail sales after Christmas may not just be about Covid but also about the coming squeeze on incomes.

‘Government needs to cancel the tax rises and urgently increase the supply of energy. Its tax and energy policies are doing damage.’

Resolution Foundation chief executive Torsten Bell told BBC Radio 4’s Today: ‘If you think about the politics of this, energy prices and taxes are always big politics in Britain.

‘The fact that two such big changes are coming on top of each other in April, at the same time as our wages aren’t rising that significantly because of higher inflation in general, I think means that this is going to be the dominant story once we come out of the bad but hopefully short-lived Omicron wave.’ 

He added: ‘2022 will begin with Omicron at the forefront of everyone’s minds.

‘But while the economic impact of this new wave is uncertain, it should at least be short-lived. Instead, 2022 will be defined as the year of the squeeze.

‘The overall picture is likely to be one of prices surging and pay stagnating. In fact, real wages have already started falling and are set to go into next Christmas barely higher than they are now.

‘The peak of the squeeze will be in April, as families face a £1,200 hit from soaring energy bills and tax rises. So large is this overnight cost-of-living catastrophe that it’s hard to see how the Government avoids stepping in.

‘Top of the Government’s New Year resolutions should be addressing April’s energy bills hike, particularly for the poorest who will be hardest hit by rising gas and electricity bills.’

Although the Resolution Foundation is Left-leaning and is run by a former adviser to Ed Miliband, it employs the Tory former minister David Willetts. Its predictions for the cost-of-living squeeze are in line with those of many other leading experts.

Inflation, which stands at 5.1 per cent now, is expected to peak at 6 per cent in spring, which would be its highest since 1992, with pay packets stagnating as a result.

The report says real wage growth was flat in October, but almost certainly began falling last month, and is unlikely to start growing until the final quarter of 2022.

As a result, real wages are on course to be just 0.1 per cent higher at the end of 2022 than at the start. By the end of 2024, real wages are set to be £740 a year lower than if the UK’s already sluggish pre-pandemic pay growth had continued.

The think-tank said that in April the cap on energy bills is expected to rise by around £500 a year. Coupled with a further £100 to recoup the costs of energy firm failures, this could mean a typical energy bill rising by around £600 a year.

This increase will fall disproportionately on low-income families as they spend far more of their income on energy.

The share of income spent on energy bills among the poorest households is set to rise from 8.5 to 12 per cent – three times as high as the share spent by the richest households.

The report said there was significant variation in energy usage within income deciles – groups created by ranking Britons into ten bands according to earnings – meaning some households faced increases of far more than £600.