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Cost of living crisis has ‘only just begun’ as workers face real-terms pay cut amid soaring prices

The i 18/01/2022 Katie Grant

British workers have seen their pay cut in real terms while simultaneously trying to cope with rising prices – and the cost of living crisis has “only just begun”, experts have warned.

Average wages fell in November after inflation was accounted for, according to data published today, which comes weeks after energy bills rose for millions of homes and the Government controversially withdrew a temporary £20 uplift to Universal Credit introduced to help struggling households during the Covid-19 pandemic.

Overall, average total pay, including bonuses, grew by 4.2 per cent during the September to November period, while basic pay, which excludes bonuses, rose 3.8 per cent, according to the latest data from the Office for National Statistics (ONS).

However, with inflation factored in, the nation’s pay packets saw “minimal growth”, with total pay rising 0.4 per cent in real terms, and basic pay remaining static, the ONS said.

And, in November, when inflation reached 5.1 per cent – the highest level in a decade – real-term wages dropped for the first time since July 2020, by 0.9 per cent for total pay and 1 per cent for regular pay.

The ONS figures also indicated that the number of people employed is now 1.4 per cent, or 409,000, above levels seen before the pandemic. Chancellor Rishi Sunak hailed the findings, pointing to the figures as “proof that the jobs market is thriving”.

But Stephen Evans, chief executive of the Learning and Work Institute, warned that the “crunch” had “only just begun”.

“The year ahead will be dominated by the cost of living crunch and labour shortages,” Mr Evans predicted.

“With higher inflation and tax rises still to come, the Government needs to help households: the cost of living crunch has only just begun.”

Around 15 million households have already been burdened with energy bill increases of at least £139 per year since Ofgem raised the price cap – the maximum amount suppliers are allowed to charge customers on default tariffs – in October. The regulator, which adjusts the cap twice a year, is due to review the figure next month, with any change coming into effect in April.

Here are some of the areas where households can expect to be hit with price increases in the coming months.

Energy bills

Without Government intervention, it is almost a foregone conclusion that energy bills will shoot up again this spring. This is because the price cap is based on how much firms are paying wholesalers to supply homes and businesses, and wholesale prices have continued to skyrocket since the cap was last adjusted. Estimates vary, but forecasters agree the sum will be in the hundreds.

Consultancy Cornwall Insight and Citizens Advice have said the £1,277 cap could soar by more than £600.

Analysis published this week by poverty charity the Joseph Rowntree Foundation found households on low incomes will spend nearly one fifth (18 per cent) of their income after housing costs on energy bills after April.

For single-adult households on low incomes this figure rises to 54 per cent. Middle-income households will spend six per cent of their incomes on energy bills on average, according to the figures.

Groceries

Shoppers’ grocery bills will continue to rise this year after climbing £15 on average in December compared to the same month in 2020. That is according to recent analysis from research firm Kantar, which predicted that prices would “inevitably” increase throughout 2022.

Fresh beef, savoury snacks and skincare products have experienced the sharpest price rises, though some goods, including fresh bacon and spirits, saw prices fall.

Kantar’s warning coincided with a similar forecast, from the British Retail Consortium (BRC), which said shoppers should expect to see store prices rise this year, and more quickly than in 2021.

Helen Dickinson, chief executive of the BRC, said the outlook for shoppers in 2022 is “very clear” – prices will “continue to rise and at a faster rate”.

This is because retailers will either be unwilling or unable to continue absorbing additional cost pressures, which range from pricier raw ingredients and surging energy bills to more expensive labour linked to the HGV driver shortage.

Transport

Rail fares are to rise by 3.8 per cent in Scotland next week and by the same amount in England in March. Wales normally matches England when it comes to rail fare increases.

While this figure is in line with last July’s Retail Price Index measure of inflation, the rise – labelled “brutal” by Labour – marks the steepest increase to fares since 2013, and comes a year after Transport Secretary Grant Shapps unveiled the Government’s “Great British Railways” plan.

Billed as the biggest overhaul of the UK’s rail network since privatisation in the mid-1990, the plan promises to protect affordable fares and season ticket caps. Once the price rise comes into effect, though, the average commuter will pay £3,263 for their season ticket, 49 per cent more than in 2010, according to analysis carried out by Labour.

Shadow Transport Secretary Louise Haigh said: “Families already facing soaring taxes and bills will now be clobbered with an eye-watering rise in the cost of the daily commute.”

Mobile and broadband

Consumers are often taken by surprise when their mobile and broadband providers bring in mid-contract price rises. But many contracts include a clause allowing firms to hike prices in March by the January Consumer Price Index rate of inflation figure, released on Wednesday, plus 3.9 per cent.

BT, EE Broadband, John Lewis Broadband, Plusnet and Vodafone are all expected to charge broadband customers this amount while TalkTalk will charge CPI plus 3.7 per cent from April.

Among mobile providers, BT Mobile, EE, Plusnet Mobile and Vodafone will increase prices at the CPI rate plus 3.9 per cent, while ID Mobile, O2 and Virgin Mobile implement a 7.1 per cent increase.

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