2022 May Become 'Year of the Squeeze' for UK Families Due to Soaring Inflation and Higher Taxes

In mid-December, the UK's Office for National Statistics said that the country's inflation rate increased to 5.1 percent in the 12 months to November, its highest level in a decade.

A leading UK think tank has warned that 2022 may become "the year of the squeeze" for Britons due to ever-increasing inflation combined with higher taxes and soaring energy bills.

The Resolution Foundation claimed in a report that the next several months "will not be easy for households who see their wages fall back […]" as they will face an income hit of £1,200 ($1,600).

According to the report, "as Omicron hopefully fades in the early months of 2022, we will come to realise the scale of the challenge posed to household finances".

The study suggested that real wage growth is not expected to rise until the end of 2022, and that April may see taxes increase as the 1.25 percent health and social care levy takes effect and income tax allowances are frozen.

The Resolution Foundation stressed that although "there is little the chancellor [Rishi Sunak] can do in the short-term to tame inflation or boost wage growth, the welcome 6.6 percent rise in the National Living Wage next April should protect the lowest earners from shrinking pay packets".

The foundation added that tackling rising energy bills should become the government's key priority "for further action".

This was echoed by the think tank's chief executive Torsten Bell, who warned that "the peak of the squeeze will be in April", when rising tax and energy bills may cause a "cost of living catastrophe".

"Top of the government's New Year resolutions should be addressing April's energy bills hike, particularly for the poorest households who will be hardest hit by rising gas and electricity bills", Bell asserted.

A government spokesperson responded to the report by arguing that Downing Street knows "people are facing pressure with the cost of living, which is why we're taking £4.2 billion ($5.6 billion) of decisive action to help".

"This includes reducing the universal credit taper – a tax cut worth over £2 billion ($2.6 billion) – supporting households with their bills through the energy price cap, warm home discount scheme, winter fuel payments, cold weather payments, and household support fund, as well as freezing alcohol and fuel duty", the spokesman added.

UK's Energy Bills May Rise by 50% Next Year

The remarks followed Emma Pinchbeck, chief executive of the British trade association Energy UK, telling the BBC that customers could be faced with energy bills up to 50% higher next year unless the government intervenes to address soaring wholesale global gas prices.

She said the UK government should follow the example of other European governments that slashed taxes and asked large users from the industrial and commercial sectors to reduce demand in order to ease the impact on the domestic sector.

"We are asking our Treasury to intervene as other governments have. When it comes to bills, it's worth remembering that less than a fifth is in the control of suppliers", Pinchbeck said.

The UK's price cap on energy bills prevents suppliers from immediately passing those costs on to their customers, but on 1 October, the Office of Gas and Electricity Markets set a record cap of £1,277 ($1,714). Despite the cap price increase, which is expected to go even higher next spring, more than 20 large and small energy companies have been forced out of the market in the UK, forcing the regulator to find new suppliers for over 2 million households.

Inflation in the UK increased by 5.1 percent last month, the highest annual rate in more than a decade, with the Office for National Statistics saying that the growth was mainly caused by jumps in the cost of petrol and clothing.