The government must act now to avoid a cost of living crisis this winter

Rising energy bills, soaring inflation and reduced benefit payments are squeezing people’s budgets. Our latest research shows 1 in 10 families — equivalent to 3.2 million households — are facing a financial crisis this winter.

We analysed average income data against household spend on essentials like rent, bills and food to establish how many families can meet their living costs.

We found that even if living on a minimal budget — based on the financial plan debt advisers use to support people through a debt management process — more than 3 million households would be unable to cover the essentials. A further 380,000 households have less than £50 spare each month after covering their basic living costs.

Without further support this winter, even more people could be pushed into the red or forced to go without essentials. We asked people about steps they’re taking to manage rising costs — 1 in 5 people said they’ve already cut back on their food shop (19%) or used less heating (20%) in the last 3 months to save money.

That’s being backed up by the calls our advisers are fielding every day. We’re giving 30% more referrals for food banks and additional charitable support than this time last year.

One of the people we’re supporting is Gordon*. He had to give up his job as an engineer when he was diagnosed with spinal cancer in 2019. Gordon* has been claiming Universal Credit as he can’t work, but recently saw this drop by £20 a week. Gordon says: “I’m living in one room to keep the heat down as low as I possibly can, but everything is just mounting up. It’s direct debit after direct debit and any minute I think I’m going to be in the minus.”

The winter cost of living crisis is just the beginning

Some predictions suggest the energy price cap could rise by as much as £500 in April — adding an extra £40 a month to default tariffs.

This will come as inflation is set to peak at around 5% and working families see a hike to their National Insurance. Vital additional council tax support is also due to end — with qualifying households losing additional support worth up to £150 a year.

2 ways the government can take action to avert the cost of living crunch

Ultimately there needs to be a comprehensive plan for tackling the cost of living crisis. But in the meantime, there are immediate steps government can take to ease the strain people are feeling and help them manage the tough winter months:

Bring forward uprating of benefits in line with inflation

The government ended the benefits freeze in 2020, pledging to ‘uprate’ benefits each year in line with inflation.

This is incredibly welcome, but the sluggish annual uprating system means that we only increase benefits in April using the inflation rate from the previous September. Inflation has already risen by 1% since then and could increase by more than 1% again by the spring.

By bringing forward benefit uprating to December — and basing it on current inflation levels — government could take an important step towards helping people cope with rising costs. This would give the average family on Universal Credit £30 extra each month to cover basic essentials.

Pause deductions from Universal Credit for money that’s owed to government

In May 2021, 29% of Universal Credit claimants were repaying Advance Payments (an upfront loan that covers the wait for the first payment). And 1 in 5 (20%) claimants were repaying benefits or tax credits that had previously been overpaid, either due to official error or mistakes made by the person claiming.

The maximum amount that can be taken is 25% of the claimant’s personal allowance, so deductions have a big impact on their budget. For households that need financial support to maintain an adequate standard of living, losing a quarter of their income to deductions frequently leads to significant hardship.

The government has the power to pause deductions for these debts. Doing so will help people keep on top of their bills this winter.

With the impact of the pandemic not yet over, essential costs rising rapidly and further increases to the cost of living on the horizon, the government must act now before things escalate further.