British households will be £1,000 worse off next year from a cost of living squeeze created by rising energy prices and shortages of workers and supplies caused by Covid and Brexit, the thinktank Resolution Foundation said.
It warned that higher levels of inflation would weigh down workers’ earnings next year, contributing to a hit to the average household income in Britain at a time when the government is cutting benefits and raising taxes. Average household disposable income, after adjusting for inflation, would be about 2% lower by the end of 2022.
“Higher inflation reduces the amount of goods and services that households are able to afford, eroding the real value of incomes,” the Foundation explained.
On top of the inflation, many households would also have to reckon with cuts to universal credit, while workers and businesses must budget for planned national insurance tax increases.
A “cost of living crunch” was brewing from the combined impact of inflation, tax rises and cuts, the thinktank said: “Together with a £13bn raid on household incomes from increases in NICs [National Insurance contributions], and sharp cuts to universal credit, there will be major headwinds to families’ spending power in the coming months.”