Household Finances:  Majority Of Brits Feel Worse Off Than 6 Months Ago As Inflation Soars – Forbes Advisor UK

Latest information on the cost of living crisis as it affects households and individuals across the UK

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16 November: Worrying Outlook For Next 6 Months With 73% Expecting To Be Worse Off 

As the cost of living crisis continues to grip UK households – and inflation has hit a 41-year high of 11.1% – nearly two-thirds ( 63%) of adults say they feel worse off now compared with six months ago, writes Bethany Garner.

And 73% expect to be financially worse off in six months’ time, according to the latest Health, Wealth & Happiness report from LifeSearch.

The study, which surveyed 3,000 individuals between 6 and 12 October 2022, also found a quarter of respondents (25%) said the cost of living crisis was ‘on their mind daily’.

Keeping up with the cost of energy bills, housing and food were key concerns. More than a third of adults (34%) said they expect they’ll be unable to pay energy bills this winter, while 22% anticipate falling behind with rent or mortgage payments.

A further 34% expect they will struggle to pay for food — rising to 49% of 18 to 34 year-olds. Almost one fifth of respondents (19%) expect to rely on food banks this winter. 

To cut down on energy costs, 38% of respondents say they’re likely to work from the office more often, while 37% plan to install smart meters at home, and 67% will avoid using major home appliances during peak hours. 

To cut their grocery bill, 67% of Brits plan to switch to a more cost effective supermarket, and 46% intend to sell items they own to raise extra cash.

Some respondents are also putting major life events on hold due to concerns over cost, with more than a third (36%) of 18 to 34 year olds delaying having a child due to the cost of living crisis.

Others are putting off buying a home (19%) or making large purchases such as a new car (25%). Christmas spending is also likely to be reined in — respondents expect to spend £76.20 less on the holiday in 2022 compared with 2021.

Despite these cutbacks, almost half of adults (45%) expect to use the ‘majority’ of their savings to keep up with costs this winter — rising to 62% of 18 to 34 year-olds.

A further 12% of respondents say they have taken on debt to make ends meet, while 9% have borrowed money from friends or family.

Nina Skero, chief executive at the Centre for Economics and Business Research, said: “As the UK economy is likely already in a recession, it is very worrying to  see the extent to which people are worried that their own personal circumstances will worsen further in the coming period. 

“The fact that nearly half of Brits (45%) anticipate using all their savings to make ends meet throughout the winter indicates that the cost-of—living crisis may leave economic scarring that will last well beyond the current inflationary spike.”

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4 November: Lenders Pay £12m Compensation To ‘Distressed’ Borrowers

Several unnamed UK lenders will pay out millions of pounds in compensation to customers who were treated unfairly after finding themselves in financial difficulty during the Covid-19 pandemic, according to the UK’s financial regulator, Andrew Michael writes.

In its report, the Financial Conduct Authority (FCA) said it carried out 69 assessments across 65 businesses which highlighted failings in the treatment of distressed borrowers. 

As a result, seven organisations have agreed to pay £12 million in compensation, to be shared among 60,000 borrowers.

The FCA said it will also be closely reviewing a further 40 firms in the coming months “to make sure they are meeting its expectations and to protect customers from harm”.

Part of the FCA review included a survey on how lenders applied debt fees and charges and the measures used to deal with struggling customers.

In another part of the exercise, the FCA said only 15 out of 50 firms it reviewed “sufficiently explored customer’s specific circumstances, which meant repayment agreements were often unaffordable and unsustainable”.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “It’s vital that the sector continues to learn lessons to make sure they support struggling customers.

“We will take action to restrict or stop firms from lending to people if they fail to meet our requirements that customers in financial difficulties should be treated fairly.”

Laura Suter, head of personal finance at AJ Bell, said: “We’re already seeing more people turn to debt to afford rising bills and it’s imperative that those who are struggling to make repayments are offered support and solutions, rather than being left to struggle to pay and ending up in a debt spiral.”

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26 October: PM Pulls Plug On Fracking, Backs Renewables And Nuclear

Jeremy Hunt, Chancellor of the Exchequer, has pushed back the government’s medium-term fiscal plan announcement from next Monday, 31 October, to 17 November, writes Andrew Michael.

The event will be upgraded to a full Autumn statement designed to demonstrate stability and engender confidence in the UK’s financial prudence under new prime minister, Rishi Sunak.

Mr Hunt said he and Mr Sunak wanted more time to go through the forecasts pertaining to the economy in general and the public finances in particular.

Mr Hunt said he was willing to make “politically embarrassing” choices and described a “short two-and-a-half week delay” to his statement as the best course of action.

Mr Hunt had drawn up a draft plan to be announced next Monday, ahead of a crucial interest rate-setting meeting of the Bank of England’s Monetary Policy Committee on 3 November.

But the plan will now take the form of a full Autumn Statement, alongside economic forecasts from the independent Office for Budget Responsibility.

In today’s Prime Minister’s Questions, Mr Sunak said decisions on the economy would be taken to protect those most vulnerable, pointing to his role as Chancellor during the Covid crisis of 2020-21, when he was architect of the furlough scheme.

However, he refused to be drawn on whether benefits would increase in line with inflation thanks to the so-called triple lock. He also added no detail as to what support might be provided to households when the current Energy Price Guarantee comes to an end in April 2023.

When quizzed on energy strategy, Mr Sunak said the government was committed to renewable energy and increased use of nuclear power. He appeared to rule out expansion of government-backed onshore wind power in favour of offshore developments.

He also suggested that he would adhere to the Conservative Party manifesto’s commitment to a moratorium on fracking, introduced in 2019, which bans the use of the controversial drilling technique to release natural gas from shale rock.

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25 October: FCA Report Finds 7.8 Million Brits Struggling To Keep Up With Bills

As housing, energy and food costs climb, one in four UK adults say they are experiencing financial difficulties, or would find themselves in difficulty after an unexpected expense, writes Bethany Garner.

According to the Financial Conduct Authority’s Financial Lives Survey, which interviewed UK adults between February and June 2022, 7.8 million Brits are finding it a heavy burden to keep up with bills

The research also found 12.9 million individuals (24%) have low financial resilience, meaning they would experience difficulties if they suffered a financial shock. 

Those living in the UK’s most deprived areas are more likely to be struggling. In the North East of England, 12% of respondents reported financial difficulties. In the North West, the figure was 10%, compared with just 6% in the more affluent South East and South West of England.

A survey by Nationwide building society suggests consumers spent 7% less in September 2022 than they did in August. 

The research analysed debit card, credit card and direct debit transactions made by Nationwide customers between 1 and 30 September. It revealed a 4% month-on-month drop in spending on servicing debt, suggesting some customers may be falling behind on repayments. 

Nationwide also found a 13% drop in spending on eating out, a 4% drop in retail spending and a 3% drop in spending on subscriptions such as Netflix in September compared with August.

While consumers are cutting back on these categories, spending on essentials increased 9% year-on-year, driven largely by motor fuel and housing costs. 

In September 2022, consumers spent 12% more on motor fuel and electric vehicle charging, 11% more on mortgage payments and 8% more on rent than they did in September 2021.

Mark Nalder, payments strategy director at Nationwide, said: “The likelihood is that the downturn in spending is likely to continue as people tighten their belts now to prepare themselves for the Christmas period, either so they have sufficient to spend, something to save or in some cases enough to get by.”

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25 October: Housing Costs Add To Nation’s Financial Woes

Almost half of UK adults are struggling to pay their energy bills, according to the ONS Opinions and Lifestyle Survey released today, writes Jo Groves.

The proportion of adults finding it difficult to afford their energy bills has continued to rise from 40% (March to June) to 45% in the last three months. A similar picture was revealed for rent and mortgage payments, with 30% of adults struggling to pay their housing costs, compared to 26% in the previous quarter. 

Rising interest rates and energy costs are likely to be at the top of new Prime Minister Rishi Sunak’s to-do list as the UK grapples with a cost-of-living crisis. All eyes will also be on the energy price guarantee scheme, which was shortened to April 2023 under Liz Truss’s government.

The ONS survey also revealed a marked disparity in the impact of higher energy and housing prices across households:

• 55% of disabled adults reported they were struggling to afford their energy bills, compared to 40% of non-disabled people. 
• 36% of disabled adults found it a challenge to afford rent or mortgage payments, compared to 27% of non-disabled people.
• Around 7 in 10 adults with prepayment meters struggled to pay their bills, compared with 4 in 10 adults paying their bills by direct debit or monthly payments.
• 6 in 10 renters found it difficult to afford their energy bills, compared to 4 in 10 people with mortgages.
• Nearly 70% of Black adults are struggling to afford their energy bills, compared to almost 60% of Asian adults and 44% White adults. 

According to the recent public opinions and social trends bulletin from the ONS, 93% of adults reported an increase in the cost of living compared with a year ago while nearly 80% reported that their cost of living had increased over the last month.

Over 10% of renters reported being behind on their energy bills, compared with 3% of home-owners with a mortgage and 1% of home-owners who own their home outright. Around 5% of renters were behind on their rent payments, compared to 1% of people with a mortgage.

The ONS attributed this difference to some home-owners having fixed-rate mortgages, while renters were exposed to rent increases.

Looking on a regional basis, adults in the North West and London were more likely to be behind with their energy bills, while almost 40% of adults in London reported they were struggling to pay their rent or mortgage.

Adults in the youngest and oldest age groups were the least likely to be behind on rent or mortgage payments. The ONS pointed to many younger adults not yet being responsible for housing costs, while older people were more likely to own their home outright.

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25 October: Sunak Strikes Optimistic Tone Despite ‘Profound Challenges’

Speaking outside 10 Downing Street after being appointed as the UK prime minister earlier this morning, Rishi Sunak has said he would put the UK’s economic stability at the heart of his new government’s agenda, writes Andrew Michael.

Mr Sunak has taken over from Liz Truss, whose 45-day tenure in office included a disastrous mini-Budget in September that sent the markets into a tailspin and saw the pound plunge to a record low against the dollar.

Mr Sunak said that Ms Truss was “not wrong” in her plan to aim for increased growth. But he acknowledged that mistakes were made: “I have been elected as leader of my party and your Prime Minister in part to fix them.”

He added: “Together we can achieve incredible things. We will create a future worthy of the sacrifices so many have made and fill tomorrow and every day thereafter with hope.”

Mr Sunak’s next step will be to announce the members of his Cabinet. It is expected that Jeremy Hunt, who was promoted to the role of Chancellor a week ago by Ms Truss, is likely to retain his job.

Next Monday, Mr Hunt is expected to reveal the details of the government’s medium-term fiscal plan and associated forecasts from the independent Office of Budget Responsibility.

One position that is immediately vacant is that of business secretary, following the resignation today of Jacob Rees Mogg, an avid supporter of Boris Johnson.

As financial markets digest the political turmoil of recent days, yields on government bonds have returned to levels last seen before the mini-Budget, with investors welcoming Mr Sunak’s appointment. The 30-year gilt yield has fallen to 3.68% today.

High yields on gilts already in circulation are bad news for the government because they mean it has to offer competitive, higher rates of interest when issuing new gilts, pushing up its cost of borrowing. This filters through to other rates of interest, which is why mortgage borrowing has become more expensive in recent weeks.

Long-dated gilts have now all but recovered the losses prompted by the mini-Budget’s seismic package of unfunded tax cuts, which required an intervention from the Bank of England to maintain stability in the UK’s financial framework.

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24 October: Victory Reduces Upward Pressure On Interest Rates

Rishi Sunak has replaced Liz Truss as the UK’s Prime Minister, less than a day after confirming his intention to stand for the role, writes Andrew Michael.

Mr Sunak, the MP for Richmond in Yorkshire and former Chancellor of the Exchequer, won the race to Number 10 Downing Street after his last remaining rival, Penny Mordaunt, dropped out of the contest to become Conservative Party leader earlier this afternoon (Monday). 

In a televised statement after his victory was confirmed, Mr Sunak said the UK faces “profound economic challenges” that would only be met through “stability and unity”. He said it is his intention to “build a better, more prosperous future for our children and grandchildren.”

Over the summer, despite winning the lion’s share of support among his party’s MPs in the previous leadership contest following Boris Johnson’s resignation, he was foiled when the party’s membership instead voted for Ms Truss.

Mr Sunak now takes over from Ms Truss, who resigned from the role just 45 days into the job following her government’s disastrous mini-Budget, which brought turmoil to the financial markets and saw the pound plunge to its lowest-ever value against the dollar.

Mr Sunak’s appointment appeared to soothe the markets, with government bonds – or gilts – rallying on today’s news. The 10-year benchmark gilt yield fell nearly a quarter of a percentage point on Monday to trade at 3.82%, reflecting a sizeable rise in the price of bonds. The pound was also trading higher against the dollar at around $1.14 

The combined effect has been to lessen interest rate rise expectations, potentially easing upwards pressure on mortgage rates. 

Edward Park, chief investment officer at Brooks Macdonald, said: “Lower gilt yields will reduce the borrowing costs of the UK government and a new fiscal outlook may allow the Bank of England to be less aggressive with their interest rate policy.”

As with his predecessor, Mr Sunak will be confronted by a deepening cost-of-living crisis, fuelled by eye watering levels of inflation caused by soaring energy costs as well as the war in Ukraine.

With two years as Chancellor under his belt, a period that coincided with the Covid-19 pandemic, Mr Sunak has already given the City of London and financial watchers a flavour of how he might run the country.

He takes the challenges posed by inflation seriously and is widely considered to be fiscally conservative. In other words, he is keen to rebalance the nation’s books. 

This tendency differs from that of his predecessor, Liz Truss, whose growth strategy imploded within weeks of the announcement of enormous, unfunded tax cuts announced in September’s mini-budget. 

Fiscal prudence

If Mr Sunak is to achieve his preference for fiscal prudence, a period of belt-tightening appears inevitable – either through tax rises, government cost-cutting, or both.

At the weekend, Lord Mervyn King, former governor of the Bank of England, warned that the UK faced a “more difficult” era of austerity than the one after the 2008 financial crisis. He added that the average person could face “significantly higher taxes” to fund public spending.

Mr Sunak will be keen to deliver on his previous promises of fiscal responsibility. He must balance this, however, with the appropriate support if he is to restore the public confidence.

The first big test for Mr Sunak will come next Monday, when his government will reveal its medium-term fiscal plan and the associated forecast from the Office of Budget Responsibility. At the time of writing, Mr Sunak is expected to retain Jeremy Hunt as his Chancellor.  

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’Gone are the days when Rishi Sunak was prepared to open up the government coffers to see the UK through a crisis. The pandemic spending spree is well and truly over and the former Chancellor will take the top job in the guise of a strict and austere headteacher.

“He will be determined not to see the bond market run amok again, threatening the country’s financial stability. He will also want to show he is cooperating with the Bank of England by being ultra conservative fiscally in a bid to tame high inflation.”

Market stability

Andrew Megson, CEO of My Pension Expert, said: “An incredible amount of chaos has ensued in the six weeks since Rishi Sunak’s failed first attempt to become Prime Minister. Now, he has the chance to prove himself, in the biggest way possible, by extinguishing the fires set alight during Truss’ 45-day reign of market crashes and embarrassing U-turns.

“Market stability will be a priority. Sunak’s first leadership campaign was led on a promise of fiscally conservative policies, which has already pleased the markets and given the pound a boost. However, it’s also crucial that the new PM focuses on immediate reassurances for Britons struggling to stay afloat amid a soaring cost-of-living crisis. Confirming his stance on key policies such as the triple lock, or benefits cuts, would be a step in the right direction.”

Sam North, market analyst at eToro, said: “With Rishi Sunak in charge there will be less pressure on the Bank of England to raise interest rates as aggressively, thanks to lower yields causing less of an incentive for traders to dump gilts. The pound will push higher due to less uncertainty, too. But with the news of his appointment already priced in, investors shouldn’t expect a big move following the announcement.”

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20 October: Mortgages, Energy Bills, Pensions And Benefits Hang In Balance As PM Resigns

Serving as Prime Minister has, until recently, been the pinnacle of British public life – a golden goblet from which the individual supped the honeydew of political immortality. Now it seems like a poisoned chalice – and a tarnished one at that, writes Kevin Pratt.

As a previous PM once noted, all political careers end in failure. But Liz Truss’s calamitous period in office will secure a place in the history books for the velocity with which errors were made and then compounded, and the scale of the damage caused.

To be fair to Liz Truss, she came to power against a backdrop of global economic turmoil. But she and her allies rapidly contrived to make things even worse by clumsily spooking the currency and bond markets and destroying the UK’s economic credibility overnight.

This doesn’t even qualify as a political statement. The pace and number of recent Treasury u-turns are an admission that mistakes were made, as was the decision to sack a Chancellor specifically chosen to bring the Prime Minister’s policies into being.

So what does all this mean for household finances?

In the context of the cost of living crisis, three issues leap out: interest rates and the cost of mortgages, the Energy Price Guarantee (EPG), and the pensions and benefits ‘triple lock’.

Mortgages

Interest rates are set by the Bank of England and are not in the gift of the Prime Minister or his or her Chancellor. But a government’s economic policies – such as large-scale unfunded tax giveaways à la Kwasi Kwarteng’s ill-starred mini-Budget on 23 September – make money markets edgy. And when they feel edgy, they demand higher returns to lend money.

The impact of this is felt far and wide, not least in higher mortgage payments (and, inevitably, rents), as banks and building societies fork out more to secure long-term funding. It remains to be seen how markets will digest the news of today’s resignation.

Energy bills

As far as energy bills are concerned, Ms Truss hailed the EPG as a huge achievement, and no-one can argue that urgent action was required to shield households from soaring costs. But Mr Kwarteng’s successor as Chancellor, Jeremy Hunt, has pulled funding for the guarantee from next April when it was due to run until October 2024.

What comes after it ends, no-one yet knows. The whole issue will be reviewed and we can expect action to help those deemed most in need. But who will qualify, and what help they’ll get, remains to be seen.

Pensions

The triple lock is designed to protect the spending power of State pensions and benefits by ensuring they increase by the highest of three measures: September’s annual inflation rate, average earnings, or 2.5%. The inflation number is by far the highest at a whopping 10.1%.

Ms Truss said only yesterday that the lock, expensive though it will prove, will remain in place, at least for pensions, and she added that the Chancellor was in agreement. But she’s gone, and who knows who will be Chancellor next week? Mr Hunt has ruled himself out of the race to be PM this time round, preferring to remain as Chancellor. But, of course, there’s no guarantee the new incumbent at Number 10 Downing Street would want to keep him as a neighbour at Number 11.

That potentially puts the triple lock back in play as a possible source of reduced expenditure for the next iteration of the Conservative government.

The sum of all this? Deep uncertainty and anxiety for millions of households. Major outgoings such as housing costs are high and getting higher, bills are rocketing, and supermarket shops are becoming more expensive by the week.

Ms Truss’s successor will no doubt assume the role brim full of optimism and confidence, but the challenges will be immediate and massive, and a lot more than their personal political legacy is at stake.

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17 October: Chancellor Tells Commons Of Severe Economic Challenges

Jeremy Hunt, the Chancellor of the Exchequer, has announced the creation of a body that will provide the government with independent expert advice on economic matters, writes Andrew Michael.

The Chancellor announced the formation of a new, four-person economic advisory council as part of a follow-up address to the House of Commons, having reversed a substantial proportion of last month’s mini-Budget earlier today.

This included a decision to scrap “indefinitely” a planned reduction in the basic rate of income tax by 1p to 19p next April and also to cut short both the Energy Price Guarantee (EPG) and Energy Bill Relief Scheme aimed at supporting UK households and businesses through the energy crisis (see full story below).

No details have been forthcoming about the levels of support that might be provided from April onwards when the EPG ends, nor how people or businesses will qualify for assistance.

Cornwall Insights, the market analyst, has said average annual bills could top £4,300 once the EPG comes to an end in the Spring under Mr Hunt’s direction. Under the EPG, an average-consumption household would pay around £2,500 a year for the next two years, starting this month.

Outlining his plans for a new economic advisory body, Mr Hunt told MPs: “I want more independent expert advice as I start my journey as Chancellor.”

The Chancellor said the panel would include Rupert Harrison, a top aide to the former Conservative Chancellor, George Osborne, plus two former Bank of England Monetary Policy Committee members, Gertjan Vlieghe and Sushil Wadwhani. Karen Ward, chief market strategist EMEA at JP Morgan Asset Management, completes the line-up.

Explaining his actions to provide a financial statement and his decision to address the nation this morning, instead of waiting until 31 October – a date that had already been brought forward by three weeks – Mr Hunt said it was important for the government to “do more, more quickly to give certainty to the markets.”

He added: “I want to be completely frank about the scales of the economic challenge we face. We have had short term difficulties caused by the lack of an Office for Budget Responsibility forecast alongside the mini-Budget.

“But there are also inflationary and interest pressures around the world. Russia’s unforgiveable invasion of Ukraine has caused energy and food prices to spike. We cannot control what is happening in the rest of the world, but when the interests of economic stability means the government needs to change course, we will do so and that is what I have come to the House to announce today.”

The pound rose against the dollar to $1.14 as Mr Hunt outlined his plans to MPs. On the stock market, the FTSE 100 index of leading UK companies rose by 0.9%.

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17 October: Axe Falls On ‘Trussonomics’ As Energy Bill Help Chopped

Jeremy Hunt, installed as Chancellor of the Exchequer last Friday, today axed all but two of the measures contained in his predecessor Kwasi Kwarteng’s 23 September mini-Budget.

Mr Hunt is also cutting short the Energy Price Guarantee (EPG) and Energy Bill Relief Scheme (EBRS) aimed at UK households and businesses. These were announced by Prime Minister Liz Truss when she took office earlier last month.

The EPG was due to run for two years but will now only run until April 2023. The EBRS, which was to run until 31 March 2023, may have been extended if a review found more support was required at that point.

Among the measures announced by Mr Hunt is the scrapping of the planned reduction in the basic rate of income tax by 1p to 19p next April. The Chancellor said the basic rate will remain at 20p “indefinitely”.

The Chancellor said that plans to cut dividend tax by 1.25 percentage points, also from next April, are also being shelved. According to the Treasury, the combined saving from these two latest tax U-turns amounts to around £7 billion a year.

Mr Hunt also said that plans to repeal reforms to off-payroll working rules – also known as IR 35 rule changes – would be scrapped.

Also being shelved is a previously planned freezing of alcohol duty rates that was due to take place from 1 February next year. The Treasury added that plans to introduce a new VAT-free shopping scheme for non-UK visitors to Great Britain were also being junked.

A 1.25 percentage point cut to National Insurance Contributions from next month has been maintained, as have changes to the Stamp Duty regime in England and Northern Ireland.

Explaining his decision to overhaul the energy support programme, the Chancellor said that it would be irresponsible of the government to “continue exposing the public finances to unlimited volatility in international gas prices”.

He added that a Treasury-led review will be launched to consider how to support households and businesses with their energy bills from April 2023 onwards.

Today’s announcements come in the wake of several significant reversals of policy that themselves were only announced in the mini-Budget.

Last week, the government said it was reversing one of the key planks of the mini-Budget – a plan to stop the increase in corporation tax next April from 19% to 25%. This will now go ahead.  On the same day, plans to remove the additional 45p in the pound rate of income were also junked.

The Treasury estimates that the savings made from these two measures come to £32 billion a year.

Mr Hunt said he had taken today’s decisions to ensure the UK’s economic stability and to provide confidence in the government’s commitment to fiscal discipline: “The government is prepared to act decisively and at a scale to regain the country’s confidence and trust.”

But Mr Hunt went on to warn that “there will be more difficult decisions to take on both tax and spending”.

As a result, government departments will be asked to find efficiencies within their budgets. The Chancellor will reveal further changes to fiscal policy on 31 October.

Market reaction

Jason Hollands, managing director of Bestinvest, said: “After recent u-turns over the abolition the 45p tax band and the halting of corporation tax rises, the new Chancellor of Exchequer has this morning comprehensively ripped-up the Prime Minister’s fiscal policy in a concerted effort to placate the angry gods of the bond markets and restore the UK Government’s battered credibility for fiscal discipline.

“These measures – which bring an abrupt end to the Truss economic experiment – have helped to placate debt markets with gilt yields falling back today. But with real incomes being squeezed, much higher business taxes now coming next year, and the burden of personal taxes set to rise as allowances are frozen too, the growth outlook for the UK remains very challenging in the near term with a recession on the way.”

Victoria Scholar, head of investment at interactive investor said: “Jeremy Hunt’s focus on reassuring the markets and reinstating confidence appears to have worked so far with gilt yields trading lower and sterling pushing higher. The FTSE 100 is staging gains with utilities and housebuilders – the most budget-sensitive sectors – outperforming, as Trussonomics is unwound with the reversal of the biggest tax cuts in 50 years.”

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17 October: Additional U-Turns Expected After Kwarteng Dismissal

Jeremy Hunt, appointed to replace Kwasi Kwarteng as Chancellor of the Exchequer on Friday, will today make statements and address the House of Commons on the government’s financial plans.

The Chancellor is expected to continue the process of rowing back on pledges made in the so-called mini-Budget on 23 September, which threw markets into turmoil, sending sterling to its lowest ever level against the US dollar and causing a crisis on gilt markets which has fed through into a steep increase in the cost of mortgage borrowing.

Markets have been concerned about the lack of detail attaching to the initial tax-cutting measures and proposed funding for growth. Mr Hunt will attempt to demonstrate a new approach to financial rigour and responsibility.

In a notice issued earlier this morning, the Treasury said: “The Chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.

“He will also make a statement in the House of Commons this afternoon [expected at 3.30pm].

“This follows the Prime Minister’s statement on Friday, and further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth.

“The Chancellor will then deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.

“The Chancellor met with the Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on these plans.”

After sacking Kwasi Kwarteng on Friday, Liz Truss, Prime Minister, reversed one of the key planks of the mini-Budget – a plan to stop the increase in corporation tax next April from 19% to 25%. This will now go ahead.

Mr Kwarteng had previously scrapped plans to abolish the additional 45p rate of tax following widespread criticism.

Mr Hunt may choose to delay the proposed cut in the basic rate of income tax, from 20p to 19p, which was due to take effect from April. Another possible reversal is the proposed exemption to VAT of overseas tourists to the UK.

The changes to National Insurance Contributions scheduled for next month – which will reverse increases announced earlier this year by Rishi Sunak, when he was Chancellor – are expected to proceed.

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14 October: £18bn Increase ‘Down-payment’ For Growth Plan

Liz Truss, Prime Minister, has reversed the decision made in the mini-Budget of 23 September not to raise corporation tax next April, as planned by the previous Conservative administration under Boris Johnson.

Speaking this afternoon, she said the increase from 19% to 25% will now proceed next year, with the £18 billion raised acting as a “down-payment” on the government’s medium-term fiscal plan for growth.

Much of the market turmoil seen in recent weeks has resulted from the plan, as announced on 23 September, being unfunded.

Corporation tax is paid by companies on their trading profits and any profits arising from investments and the sale of assets. The ‘small profits’ rate of corporation tax will be maintained, meaning smaller or less profitable businesses will not pay the full 25% rate, with those with less than £50,000 profit continuing to pay 19%.

The full details of the fiscal discipline that will support the plan for tax cuts and investment will be provided on 31 October by Jeremy Hunt, who was appointed Chancellor earlier today following the dismissal of Kwasi Kwarteng.

Mr Hunt’s forecast will be accompanied by a report from the independent Office for Budget Responsibility.

Today’s corporation tax u-turn follows the retreat by Mr Kwarteng earlier this month when he abandoned plans to remove the 45 pence additional rate of tax – another controversial plank of his mini-Budget.

Ms Truss says she remains committed to creating a low tax, high wage and high growth economy with reduced levels of government debt and a more efficient public sector. She said that levels of public spending will grow at a slower rate than previously planned.

The pound bounced back against the dollar after dipping below $1.12 as currency markets digested the Prime Minister’s press conference.

On the stock market, the FTSE100 index of leading UK shares was up 1.7% on the day at 6967.

Jason Hollands, managing director of Bestinvest, commented on the changes: “Businesses and investors do not like instability and uncertainty but the retreat on corporation tax at least signals to the bond markets that the government is responding to concerns about fiscal discipline.

“The move to keep the corporation tax hike in April 2023 – the policy set out at the last full Budget – seems to be a tactic to appease bond markets with some fiscal balancing, while at the same time trying to retain tax-cutting credentials in terms of personal taxation.

“We still have an autumn fiscal statement on 31 October, but it seems unlikely given the chastening experience of the last three weeks that it will contain anything new or ambitious.”

Matthew Amis, investment director, abrdn said: “It feels like more chapters are still left in this story but, for the time being, financial markets and, particularly, the gilt market can take a deep breath and calm down a touch. This should allow the Bank of England to step away from gilt buying on Monday as planned and increases the prospects of quantitative tightening starting in a few weeks’ time.

“Gilt yields have rallied significantly in the last two sessions, which makes sense. However, the pressure is still for gilt yields to edge higher from here, albeit with less volatility. The Bank will still need to hike [interest rates] aggressively in the next few months and the gilt market will still need to absorb extremely high levels of gilt supply.

“However with ‘Trussonomics’ filed away under the heading ‘disaster’, we can hopefully get back to a functioning gilt market.”

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14 October: Truss To Explain Strategy This Afternoon

Former health secretary Jeremy Hunt has been appointed Chancellor of the Exchequer after Kwasi Kwarteng was sacked from the role by Prime Minister, Liz Truss, having lasted just 38 turbulent days in the office, writes Andrew Michael.

The appointment comes as Ms Truss prepares to announce significant changes to her government’s recent mini-budget that caused turmoil on the markets, the pound fall to a record low against the dollar, and a fire sale of UK pension fund assets worth billions of pounds.

Earlier this summer, Mr Hunt ran against Ms Truss in the Conservative Party leadership contest, but was ejected from the process early on having failed to secure enough support from fellow MPs.

Mr Hunt had previously lost out to Boris Johnson in the final round of the 2019 Conservative Party leadership contest.

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12 October: One-In-Five Homes Delay Switching On Heating

Just 21% of UK households have switched on their central heating since the end of summer this year, writes Bethany Garner, in a bid to stave off higher energy costs.

And, as households continue to grapple with the rising cost of living, almost one-in-five (18%) households intend to delay switching on their heating until December — two months later than usual — while 22% say they will only use it on rare occasions.

More than three quarters (78%) said they will wear warmer clothing and ‘extra layers’ around the house rather than use their central heating, the survey found. 

Householders also expect to use their heating more conservatively than in previous years with a quarter of respondents (25%) planning only to heat specific rooms. 

Nationwide gathered a total of 4,078 responses between 12 and 15 August, and between 30 September and 3 October. 

The report coincides with the government’s Energy Price Guarantee which took effect on 1 October. While the guarantee ensures that a typical-use UK household will pay no more than £2,500 a year for their energy bills, this is still £529 higher than under the previous price cap.

Mandy Beech, director of retail services at Nationwide, said: “This poll shows how stretched many are becoming, even considering the government’s energy price cap, with people having to think carefully about when, and in what rooms, they turn their heating on.”

Households cutting back on food

The drive to save on energy is part of a wider cost-cutting trend sparked by the cost of living crisis, with 81% of the households Nationwide surveyed planning to reduce their spending in some way. 

Food was a key area for saving, with almost half of respondents (48%) reporting they have cut back on eating out and takeaways, 40% spending less on supermarket fresh meat, 27% buying fewer fresh fruits and vegetables and 33% changing where they shop for groceries.

In other spending areas, a further 36% say they are using their car less, while 33% are cutting back by mending clothes rather than buying new.

Limited savings cushion

Almost a third of people (32%) have been unable to save any money since April while a further 40% have managed to save a maximum of just £300.

In the absence of an adequate savings cushion, there is a risk that households may turn to borrowing to make it through the winter. 

Nationwide’s research found that 20% of households would consider using a credit card to cover rising energy costs, while a further 15% said they would consider using a personal loan.

Ms Beech added: “Now more than ever, we would encourage anyone who is struggling financially to speak to their financial services provider.”

Back in August Nationwide launched a cost-of-living hotline for customers worried about their finances.

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10 October: Chancellor To Reveal In-Depth Assessment Of The UK’s Finances This Halloween

Kwasi Kwarteng, the Chancellor of the Exchequer, has brought forward his debt-cutting fiscal plan – and accompanying official forecasts – by more than three weeks, Andrew Michael writes.

Mr Kwarteng, architect of the UK government’s recent mini-Budget that prompted a period of stock market turmoil and the pound falling to a record low against the dollar, had promised to publish a medium-term fiscal plan on 23 November 2022.

But with the Chancellor under pressure to act faster, the plan’s contents – which are due to show how he will set the UK’s debt on a downward path within five years – will now be published on 31 October.

The new fiscal plan will be judged by the independent Office for Budget Responsibility (OBR) on the same day, with its verdict eagerly expected by the financial markets.

In September, amid a raft of announcements including giving the green light to fracking as a means of viable UK energy production, the mini-Budget included proposals for unfunded tax cuts worth £45 billion.

A decision to scrap the 45p in the pound additional income tax rate for high earners was subsequently scrapped.

But the mini-Budget’s overall effect not only prompted a run on the pound, it also forced an intervention by the Bank of England to maintain financial stability within the government bond markets.

In a letter to Mel Stride MP, chair of the Treasury Select Committee, Mr Kwarteng said the new date of 31 October would allow the OBR, which checks the government’s financial plans, “to capture data releases, such as the recent quarterly national accounts.

“It will allow for a full forecast process to take place to a standard that satisfies the legal requirements of the Charter for Budget Responsibility enacted by Parliament and that also provides an in-depth assessment of the economy and public finances.”

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4 October: Regulator Punishes Firms For Pollution And Supply Failings

Customers of 11 water companies will have their bills reduced by £150 million after their suppliers failed to hit performance targets, writes Candiece Cyrus.

Ofwat, the market regulator, found 11 of 17 water companies across the UK missed targets for water supply interruption, pollution incidents and sewer flooding for the year 2021/22. There have been widespread reports in recent months of pollution in UK rivers and on stretches of coastline.

The summer also saw the Environment Agency announce that the performance of England’s nine water and sewerage companies had fallen to its lowest level since its assessments began in 2011, prompting it to call for action such as higher fines for deliberate pollution.

The lion’s share (£80 million) of the £150 million penalty will be returned to the customers of the two worst-performing companies, Thames Water and Southern Water. 

Better performing companies, such as Severn Trent Water, which exceeded their targets, will be able to increase their customers’ bills. Taking into account the amount better performing companies will add to their customers’ bills (£97 million), the net loss to the water industry will be £53 million in reduced bill payments.

However, Ofwat says all 17 water companies will be able to increase bills by the rate of inflation as measured by the Consumer Prices Index including owner occupiers’ housing costs (CPIH), thus offsetting any reduction. In August, the annual rate of CPIH stood at 8.6%. 

Households should expect the changes to their bills in 2023-24.

David Black, chief executive of Ofwat said: “When it comes to delivering for their customers, too many water companies are falling short, and we are requiring them to return around £150 million to their customers. 

“We expect companies to improve their performance every year. Where they fail to do so, we will hold them to account. 

“All water companies need to earn back the trust of customers and the public and we will continue to challenge the sector to improve.” 

Warren Buckley, customer experience director at Thames Water which has 15 million customers, said: “Last year we saw a significant reduction in total complaints to the business following improvements to our customer service as well as a 39% reduction in supply interruptions in the last two years. 

“We can confirm that the financial penalties incurred will be refunded to customers as part of their normal bills and set out clearly on the bills. Adjustments to household bills will be announced next year.

“We’re determined to do better, and while we’re heading in the right direction, we know there is a long way to go.”

Water companies must meet shared and individually tailored yearly targets. They were last set at the most recent price review in 2019, and will remain in place up until the next price review in 2025.

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3 October: Kwarteng Bows To Pressure Ahead Of Conference Speech

Kwasi Kwarteng MP, Chancellor of the Exchequer, has taken to Twitter to announce a reversal to a key element of last month’s mini-Budget – the abolition of the additional rate of tax of 45p for those earning £150,000 a year will not now take place.

Mr Kwarteng is due to address the Conservative Party conference in Birmingham later today.

In his social media statement, Mr Kwarteng said: “It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.

“As a result, I am announcing that we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.”

A number of senior Tory MPs including former ministers Michael Gove and Grant Shapps have been highly critical of the proposed abolition, heaping pressure on the Chancellor and Liz Truss, Prime Minister, who was advocating the measure as recently as yesterday.

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26 September: Update On Fiscal Statement Accompanies Bank Bid To Cool Markets

Following the ‘mini-Budget’ fiscal statement on Friday 23 September by Kwasi Kwarteng, Chancellor of the Exchequer, the Treasury today issued an explainer setting out how the government’s controversial Growth Plan will be realised, writes Kevin Pratt.

The news came on the same afternoon as a statement by Andrew Bailey, governor of the Bank of England, saying that the Bank is monitoring the volatile performance of sterling on international currency markets, and that its Monetary Policy Committee will not hesitate to raise interest rates to control inflation at its next scheduled meeting on 3 November.

There had been speculation that the Bank would be forced into unscheduled emergency action to prop up the pound after it took a battering in Asian markets and hit a 50-year low against the US dollar on Monday morning.

Taken together, the statements from the Treasury and the Bank look like a concerted effort to calm markets, with commentators concerned that negative reaction to Friday’s statement is having a deeply damaging effect on the UK economy.

The Treasury says ministers will announce detailed measures in October and early November, including changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.

In October, the Chancellor will outline regulatory reforms to ensure the UK’s financial services sector remains globally competitive. On Friday, he raised hackles in some quarters by abolishing the cap on banker bonuses (see coverage below).

There will be another statement from Mr Kwarteng – dubbed a Medium-Term Fiscal Plan – on 23 November. This will set out further details of the government’s rules for managing its finances, including ensuring that debt falls as a share of gross domestic product in the medium term.

The government has stated it will stick to departmental spending settlements for the current spending review period.

The Chancellor has told the Office for Budget Responsibility (OBR) to provide a full forecast for the nation’s finances to accompany this statement.

There will then be a full-blown Budget in the Spring, with a further OBR forecast.

Mr Kwarteng responded to criticism of his Friday statement by doubling down on his tax-cutting agenda, saying that further changes would be made to the tax regime in a bid to stimulate growth at a trending rate of 2.5% per annum.

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23 September: Chancellor Promises ‘New Approach For New Era, Focused On Growth’ In Controversial Mini-Budget

Increases to Stamp Duty allowances and cuts to income tax featured prominently in today’s fiscal statement by Kwasi Kwarteng MP, Chancellor of the Exchequer.

He also confirmed the package of measures designed to reduce the impact of rising energy bills for households and businesses. He said the action to control prices would cost £60 billion over six months.

Yesterday, the Treasury released details of how the increase to National Insurance Contributions (NICs) imposed earlier this year will be reversed from 6 November. And the planned introduction of an income tax levy to fund health and social care in April 2023, which would have replaced the temporary NICs hike, will no longer happen (see story below).

Mr Kwarteng said the government will pursue economic growth at an annual rate of 2.5%, saying the government is adopting “a new approach for a new era”. Growth in the second quarter of 2022 was minus 0.1%, and yesterday the Bank of England said Q3 growth is also likely to be negative.

Two successive quarters of negative growth is taken to signal a recession.

To fuel growth, the government is proposing almost 40 new low-tax investment zones across England, and says it will work with devolved authorities in Scotland, Wales and Northern Ireland, to extend the scheme across the country.

The planned increase in Corporation Tax from 19% to 25%, slated for April 2023, has been pulled. The Chancellor said the move will ensure the rate will continue to be the lowest in the G20 group of nations.

Mr Kwarteng is also removing the cap on banker bonuses to encourage growth in the financial services sector. The cap says a bonus cannot be higher than twice a banker’s salary without shareholders’ agreement.

Here are other main points from today’s event:

• Basic rate of income tax to fall from 20% to 19% next April, a year ahead of schedule. The move will save someone earning £40,000 around £560 a year
• Additional tax rate of 45% on earnings over £150,000 per annum to be scrapped from April, benefiting an estimated 630,000 taxpayers. Someone earning £200,000 a year will save around £4,300
• Exemption from Stamp Duty in England and Northern Ireland will apply to first £250,000 of property value, up from £125,000
• First-time buyers will be exempt from Stamp Duty on first £425,000, up from £300,000
• First-time buyer property value to be eligible for exemption up from £500,000 to £625,000
• As announced, Energy Price Guarantee will limit average household energy bills to £2,500 per annum for two years from 1 October 2022
• Every household in the UK will receive a £400 discount off their electricity bills between October and March 2023
• Energy Bill Relief Scheme will provide equivalent relief to businesses, charities and public sector organisations such as schools and hospitals
• Planned alcohol duty increases will be scrapped
• VAT-free shopping for tourists to the UK will be introduced via a digital scheme
• Universal Credit will be reformed to encourage recipients to look for paid employment.

Stamp Duty

The Chancellor revealed a package of major cuts to Stamp Duty Land Tax (SDLT) in England and Northern Ireland with immediate effect. Scotland and Wales have their own property purchase tax regimes.

The SDLT nil-rate band – the threshold below which Stamp Duty does not need to be paid – will be doubled from £125,000 to £250,000. It means that 200,000 more people every year can buy a home without paying any property tax at all, according to Mr Kwarteng.

Given the previous rate of 2% charged between £125,000 and £250,000, it means the maximum that can be saved is £2,500.

First-time buyers, who currently do not pay SDLT on the first £300,000 on homes costing up to £500,000, will see the nil-rate band extended to £425,000 on homes costing up to £625,000.

Rightmove said that, by raising the tax-free threshold to £250,000, 33% of all homes currently for sale on its portal in England will be completely exempt from the property tax, a steep increase from 7%. It says that, within an hour of the announcement, traffic to its website jumped by 10%.

The 3% SDLT loading which applies to the purchase of additional properties such as holiday homes or buy-to-let will remain.

Reaction to today’s SDLT relief announcement has been mixed. Tomer Aboody, director of property lender MT Finance, said: “The Stamp Duty relief will bring the buzz back to the housing market by helping first-time buyers get on the ladder, allowing them to offset the higher cost of mortgages with the savings.”

But other commentators have warned that the cuts will fuel rising house prices, as sellers add more onto asking prices in the knowledge that buyers are making a saving elsewhere.

Ben Merritt, director of mortgages at Yorkshire Building Society, said: “Instead of focusing solely on tax cuts, it’s crucial we look at finding other solutions specifically for downsizers – those looking to move into smaller properties – to try and stimulate a stunted market.”

The building society’s research showed that, while 19% of homeowners looking to downsize see Stamp Duty as a barrier to moving, almost a quarter (23%) say it’s the insufficient supply of appropriate housing that prevents them from moving.

However the Chancellor said he intends to tackle property supply shortage by ‘increasing the disposal of surplus government land’ on which to build new homes.

Help to Buy – a government scheme which offers an equity-linked loan of up to 20% of the property value to – applies only to new-build properties.

Universal Credit

Mr Kwarteng announced changes to the Universal Credit (UC) scheme designed to encourage more claimants into work. 

The Administrative Earnings Threshold — the amount UC recipients must earn before being moved from the Intensive Work Search regime to the Light Touch regime — is set to be raised from its current value of £355 a month for individuals or £567 a month for couples. 

The new threshold, which builds on an increase already planned for 26 September, will be 15 hours per week at National Living Wage for individuals (approximately £617.50 per month) and 24 hours a week (approximately £988 per month) for couples. It will come into effect from January 2023.

Following the change, roughly 120,000 Universal Credit claimants will be moved into the Intensive Work Search Regime, which requires them to take actions such as attending appointments with a work coach and submitting job applications. If these criteria are not met, claimants’ benefits are cut.

Claimants over 50 are also set to receive additional tailored support provided through job centres, with the aim of boosting earnings prior to retirement.

Pensions

Reforms are to be brought forward that will change the pensions regulatory charge cap — the maximum fee occupational defined contribution pension schemes can charge savers who are in default arrangements. The fee currently sits at 0.75% of funds under management. 

With this reform, the government aims to encourage pension funds to invest in innovative UK businesses while spurring higher returns for savers. 

Alongside charge cap reforms, the newly announced Long-Term Investment for Technology & Science (LIFTS) competition is designed to stimulate further investment in tech businesses. It will provide up to £500 million of support to new funds investing in UK science and technology companies.

Investment zones

The Treasury has issued plans for the introduction of low-tax investment zones across the UK, with 38 locations in England listed so far.

The zones will see planning regulations relaxed, with businesses in the areas set to benefit from lower taxes in an effort to boost investment, industrial growth, employment rates and home ownership.

In relation to the move the Chancellor said: “To support growth right across the country, we need to go further, with targeted action in local areas.

“We will cut taxes. For businesses in designated tax sites, for 10 years, there will be accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plant and machinery.”

Businesses in these locations will benefit from full Stamp Duty relief for land and buildings for commercial use or residential development. 

The local authorities listed are: 

• Blackpool Council 
• Bedford Borough Council 
• Central Bedfordshire Council
• Cheshire West and Chester Council 
• Cornwall Council 
• Cumbria County Council 
• Derbyshire County Council 
• Dorset Council 
• East Riding of Yorkshire Council 
• Essex County Council
• Greater London Authority 
• Gloucestershire County Council 
• Greater Manchester Combined Authority 
• Hull City Council 
• Kent County Council 
• Lancashire County Council 
• Leicestershire County Council 18. 
• Liverpool City Region 
• North East Lincolnshire Council 
• North Lincolnshire Council 
• Norfolk County Council 
• North of Tyne Combined Authority 
• North Yorkshire County Council 
• Nottinghamshire County Council 
• Plymouth City Council 
• Somerset County Council 
• Southampton City Council 
• Southend-on-Sea City Council 
• Staffordshire County Council
• Stoke-on-Trent City Council 
• Suffolk County Council 
• Sunderland City Council
• South Yorkshire Combined Authority 
• Tees Valley Combined Authority
• Warwickshire County Council 
• West of England Combined Authority 
• West Midlands Combined Authority 
• West Yorkshire Combined Authority.

Business investment

The Chancellor announced further backing for schemes that support investment in start-up businesses and an increase in the Company Share Option Plan (CSOP), which allows firms to offer employees share options.

The schemes, including the Seed Enterprise Investment Scheme (SEIS), offer perks to investors in businesses that are deemed vital to the economy, including tax reliefs. 

From April 2023:

• companies will be able to raise £250,000 in SEIS investment – an increase of 66%
• the cap on gross assets will be increased to £350,000 and the age limit from two to three years to enable more companies to use the scheme
• the annual investor limit will double to £200,000.

This will help the 2,000 companies which use the scheme each year, according to the Treasury.

While changes to similar schemes, the Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS), have not yet been outlined, the government said that it ‘sees the value’ in extending these schemes in the future.

The share option plan limit will also double in April 2023, from £30,000 to £60,000 per individual director or employee.

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September 22: Kwasi Kwarteng Reverses NIC Hike, Scraps Health & Care Levy Due Next April

Ahead of Friday’s mini-Budget, the Chancellor has announced that the 1.25 percentage point increase in National Insurance contributions (NICs) introduced last April, and partially reduced in July, will be fully reversed in November.

The government says most employees will receive a cut to their NICs directly via payroll in their November pay. Some will receive it in December or January, depending on their employer’s payroll software.

The NIC payment thresholds which were raised in July to remove 2.2 million lower-paid workers from paying any NICs will remain in place at today’s levels. For people on pay of less than £12,570, this means they will still not pay any tax on their earnings.

The higher NIC rates were due to return to 2021-22 levels in April 2023, when a separate Health and Social Care Levy was due to take effect, adding 1.25% to income tax bills. 

Chancellor Kwasi Kwarteng MP has now pulled the plug on the Levy, which would have raised £13 billion annually. However, he has said funding for health and social care services will be protected and will remain at the same level as if the Levy were in place.

The costs will be met from general taxation.

The government says that, taken together, the changes will mean almost 28 million people will pay £135 less this tax year and £330 less in 2023/24, with 920,000 businesses saving an average of £10,000 in 2023 as they will no longer pay a higher level of employer National Insurance.

The Chancellor’s statement tomorrow – dubbed his ‘growth plan’ – is expected to confirm that increases to dividend tax rates will be scrapped from April 2023. 

Income tax on dividends was increased by 1.25 percentage points in April 2022 so that those receiving dividend income also helped fund health and social care. Removing the increase will, says the government, save those who pay tax on dividends an average of £345 next year.

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16 September: More Households Feeling Squeeze As Costs Rocket

A survey of 4,963 households the Office for National Statistics has confirmed that 90% of Brits are seeing their cost of living increase, with four in five adults worried about the impact of higher bills.

The survey, covering the period 31 August to 11 September, found:

• 87%) adults reported that their cost of living had risen over the past month (91% in the previous period, 17 to 29 August)
• when the question was first asked in November 2021, the figure was 62%
• 82% adults reported being very or somewhat worried about rising costs of living 81% in the previous period)
• when the question was first asked in April 2022, the figure was 74%
• 48% of adults who pay energy bills found it very or somewhat difficult to afford them (45% in the previous period)
• 29% of adults reported that they found it very difficult or difficult to pay their usual household bills in the last month compared with a year ago, while just over 21% stated this was very easy or easy.
• 26% of adults reported being unable to save as much money as usual when asked about how their household finances have been affected in the past 7 days.

The main reasons reported for the rise in the cost of living were:

• increased price of food shopping (95%)
• higher gas or electricity bills (78%)
• the higher price of fuel (71%).

The ONS, the UK’s official data-gatherer, also asked the survey sample about the ways their household finances have been affected in the past seven days. It found:

• 26% reported being unable to save money as usual 
• 18% stated that they had to use savings to cover living costs
• 17% said they had less money available to spend on food
• 17% reported their savings value is being affected by economic instability.
• 35% of adults reported that their household finances had not been affected in the past 7 days.

On Friday 23 September, Kwasi Kwarteng MP, Chancellor of the Exchequer, will deliver a mini-Budget setting out how the government plans to tackle the cost of living crisis in general and the impact of rising energy bills in particular.

More detail is expected on the Energy Price Guarantee, announced by the Prime Minister on 8 September, in particular the help to be provided to businesses. We already know that the Guarantee will cap average household bills at £2,500 a year for two years from 1 October.

The Chancellor is also expected to announce a series of tax-cutting measures, including a reduction in national insurance contributions.

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1 August: City Watchdog Bolsters Stance Against Misleading Financial Promotions  

The UK’s financial regulator has finalised tougher rules for the marketing and promotion of high-risk investments, writes Andrew Michael.

Under its new, more robust set of rules, the Financial Conduct Authority (FCA) says that firms approving and issuing marketing material “must have the right expertise”.

The regulator added that firms marketing some types of high-risk investments “will need to conduct better checks to ensure consumers and their investments are well matched”.

According to the FCA, firms also “need to use clearer and more prominent risk warnings”. In addition, certain incentives to invest, such as ‘refer a friend bonuses’, have now been banned.

As part of its Consumer Investments Strategy, the FCA says it wants to reduce the number of people who are investing in high-risk products that do not reflect their risk appetite. In other words, taking out investments that are inappropriate for a certain individual’s financial situation.

Although the FCA warns consumers regularly about the financial dangers of investing in cryptocurrencies, the regulator’s new rules will not actually apply to cryptoasset promotions.

But the FCA said that once the UK government has confirmed in legislation how crypto marketing is to be brought within its remit, it will then publish final rules on the promotion of cryptoassets.

These are expected to follow the same approach as those for other high-risk investments.

FCA director Sarah Pritchard said: “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk.”

“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act,” Pritchard added.

Nathan Long, senior analyst at the investment platform Hargreaves Lansdown, said: “With a sharp focus on understanding consumer behaviour, the FCA is introducing pragmatic rule changes to clamp down on retail investors buying high risk investments.”

Long added: “The attention has rightly been placed on improving consumer understanding at the point of their decision making.”

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29 July: More Protection For Funeral Plan Customers As Regulation Gets Underway 

Companies that offer pre-paid funeral plans will be regulated by the Financial Conduct Authority (FCA) from today, offering greater protection to customers. 

Funeral plans are designed to cover the main costs of cremation or burial, so that your family are not left with the bill after you die. Plans can be paid for upfront, as a lump sum or in monthly instalments of between one and 10 years. 

Regulation will ban firms from cold calling potential customers, and from making commission payments to intermediaries such as funeral directors. 

Providers will also be required to deliver funerals to all customers, unless they pass away within the first two years of taking out the plan, in which case a full refund must be offered.

FCA regulation also brings funeral plans under the Financial Services Compensation Scheme (FSCS), meaning consumers can now claim back their money up to £85,000 if a provider goes bust, while recourse will be available under the Financial Ombudsman Service (FOS) if a customer believes they have not been treated fairly by a provider.

Complaints about issues that occurred prior to FCA regulation can be raised, so long as the provider was registered with the Funeral Planning Authority (FPA) at the time.

Majority of market now regulated

So far, 26 funeral plan providers have been authorised by the FCA, including the UK’s largest providers, Co-Op Funeral Plans Limited and Dignity Funerals Limited. 

These newly-authorised firms account for 1.6 million plans — 87% of the UK market. Providers that have not been authorised have until 31 October 2022 to either transfer plans to an authorised firm, or refund customers. 

Emily Shepperd, executive director of authorisations at the FCA said: “We have worked tirelessly to assess funeral plan providers, under our robust authorisation process. We are pleased that 87% of the market is now under regulation. 

“With our new rules in place, consumers will be better protected when they need it the most.”

The FCA advises customers to check whether their provider has been authorised. If not, they should get in touch with the provider to inquire about their plan.

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27 July 2022: FCA Consumer Duty Rules Tighten Protections, End ‘Rip-Off’ Charges

UK regulator, the Financial Conduct Authority (FCA), is introducing rules designed to protect customers from being ripped off and to ensure they are treated fairly and get the support and service they need.

The FCA says its new Consumer Duty “will fundamentally improve how firms serve consumers. It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.”

It will require firms to: 

• end rip-off charges and fees 
• make it as easy to switch or cancel products as it was to take them out in the first place 
• provide helpful and accessible customer support, not making people wait so long for an answer that they give up 
• provide timely and clear information that people can understand about products and services so they can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read 
• provide products and services that are right for their customers  
• focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.

Among the effects of the new requirements, which will be phased in from July 2023, will be firms being obliged to offer all customers their best deals, rather than using them to tempt new customers. This rule is already in place for car and home insurance.

The reverse will also be true in that firms will be expected to make their best deals available to new customers.

The Duty is made up of an overarching principle and new rules that will mean consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it. 

The FCA says the new environment should foster innovation and competition. It says it will be able to identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms. 

Sheldon Mills at the FCA said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first. 

“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”

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6 July 2022: Struggling Households Must Seek Help – As Worse To Come

Households struggling financially as a result of the deepening cost of living crisis, are failing to seek available support due to lack of understanding or feelings of embarrassment.

Worry, shame and fear

According to a report published today by the financial regulator, the Financial Conduct Authority (FCA) and MoneyHelper, a government-back online advice service, 42% of borrowers who had ignored their lenders’ attempt to contact them had done so because they felt ‘ashamed’.

It also found that two-in-five (40%) people who were struggling financially mistakenly thought that talking to a debt advisor would negatively impact their credit file.

Other reasons for failing to address financial problems included doubts about the value of contacting lenders, with 20% believing it would not be of any help, and negative perceptions about the potential outcome – with 18% worried about losing access to existing credit and 16% worried about gaining access to credit in the future.

The FCA urged consumers who are struggling to keep on top of their finances to contact lenders to discuss available options, such as a potential payment plan – and to seek free advice from MoneyHelper.

More than half (52%) of borrowers in financial difficulty waited more than a month before seeking help and, of these, 53% regretted not doing it sooner.

Sheldon Mills, executive director of consumers and competition at the FCA, commented, “Anyone can find themselves in financial difficulty, and the rising cost of living means more people will struggle to make ends meet. 

“If you’re struggling financially the most important thing is to speak to someone. If you’re worried about keeping up with payments, talk to your lender as soon as possible, as they could offer affordable options to pay back what is owed.”

Debt advice charities such as StepChange or Turn2Us are also independent and free of charge, and making contact will not damage – or even be visible – on your credit file.

Economic outlook

The FCA’s advice has coincided with a Bank of England report, also published today, which warns that people with high levels of debt will find themselves ‘most exposed’ to further price rises of essential goods such as food and energy – especially if costs continue to climb quicker than expected, or it becomes more difficult to borrow.

The Bank’s Financial Stability Report found that day-to-day living costs have risen sharply in the UK and across the rest of the world, while the outlook for growth has worsened.

It points the blame largely at Russia’s illegal invasion of Ukraine; both countries produce significant proportions of the world’s wheat supply, along with other staples such as vegetable oil, resulting in high  food prices and high levels of volatility in the commodity markets.

The Bank said that ‘like other central banks around the world’ it has increased interest rates to help slow down price rises. However, costs are still soaring with annual inflation – 9.1% for May – at the highest level for 40 years.

Combined with tightening borrowing conditions, repaying or refinancing outstanding debt will become harder, said the Bank. It expects households and businesses to become further stretched in the next few months, while being ‘vulnerable to further shocks’.

Both reports land against the backdrop of a political crisis in which two of the Government’s most senior cabinet members – the Chancellor of the Exchequer, Rishi Sunak and Health Secretary, Sajid Javid – both resigned over lack of faith in the Government’s leadership.

Former education secretary, Nadhim Zahawi has now taken up the reins as Chancellor but will inherit ongoing problems including soaring petrol, energy and food prices as well as the plummeting value of the pound.

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