5 ways your cost of living will rise in 2022 (and what you can do about it)

In recent weeks, you will have seen the headlines that UK households are facing the biggest cost of living crisis in a generation.

A perfect storm of price rises as a consequence of the Covid-19 pandemic and Brexit will likely see your outgoings rise sharply in 2022. You’ll notice this in everything from your weekly shop to the price of filling up your car at the pump.

Read on to discover five of the main ways your cost of living will rise in 2022, and what you can do to mitigate any price hikes.

Inflation

The inflation rate is the rate at which prices of goods and services are rising. Office for National Statistics data shows that UK inflation rose from 5.4% in December to 5.5% in January – the highest rate in 30 years.

That means that, on average, prices were 5.5% higher in January 2022 than they were in 2021. And, with the inflation rate expected to rise further, you can expect to see goods and services become even more expensive this year.

This is a problem for two main reasons:

• If your earnings are not rising at the same rate as inflation, then you will have less disposable income every month
• If you have cash savings, the rate of interest you’re earning on these is significantly less than the inflation rate. This means that your money is losing value in real terms, as your savings won’t be able to buy as much next year as they can now.

While you can’t control the inflation rate, you can take care to shop around when you’re buying anything – particularly big-ticket items. Even small savings you generate by researching prices online can help your money to go further.

Energy prices

The inflation rate is partly being fuelled by an increasing demand for oil and gas, and this has driven up energy prices across the world.

A price cap for the most expensive gas and electricity tariffs was introduced in the UK in January 2019 to try and ensure customers paid a fair price. In February 2022 it was announced that this price cap will be increased from 1 April for approximately 22 million customers. 

Ofgem say that those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 a year.  

The rise in price cap will affect you if you’re on your provider’s default tariff and you haven’t switched to a fixed deal. It may also affect you if you have remained with your new energy supplier after your previous supplier exited the market (for example, because they went out of business).

There are two main ways that you can try and keep your energy prices down:

• Be as energy-efficient as you can. Turn off electronic devices when you are not using them, use LED light bulbs, and make sure your home is as well-insulated as it can be.
• Shop around. Many online comparison sites will let you compare the cost of gas and electricity from a wide range of providers. 

Financial expert Martin Lewis has warned that the price cap increase could mean a “seismic” hike for energy bills. “We are going to see a minimum 50% increase in energy prices in the system and that is unsustainable for many,” he said.

Tax rises

In April, millions of people (and businesses) will pay more tax. There are three reasons for this:

• The rate of National Insurance contributions (NICs) will rise by 1.25 percentage points. The BBC report that someone on a salary of £30,000 will pay an additional £214 a year.
• The rate of Dividend Tax will also rise by 1.25 percentage points in April. Anyone who earns more than £2,000 in dividends – for example, business owners who draw their income as dividends – will pay more tax.
• The thresholds at which individuals start to pay Income Tax (the Personal Allowance) and start to pay higher-rate tax (at 40%) have been frozen until 2026. So, if you get a pay rise this year you could be pushed into a higher Income Tax bracket, increasing the amount of tax that you pay.

While the tax increases will affect millions of workers, there may be ways you can mitigate the tax rises. For example, sacrificing some of your salary for a pension contribution could reduce the amount of NICs you pay.

Insurance

From 1 January 2022, new rules from the industry regulator, the Financial Conduct Authority (FCA), came into force. 

These regulations mean that premiums charged to anyone who renews their home and private motor insurance cannot be higher than the price the same insurer would charge to an equivalent new customer for the same policy.

What this is likely to mean is that you may not benefit from very steep discounts if you shop around and change your car or home insurance every year. 

However, it may also mean that prices might not drop for existing customers, so comparing prices might still be a good way to save money. Head online when your insurance is up for renewal and compare rates against what your existing insurer is charging you to renew.

If you took out your life insurance through a third party – perhaps the firm who arranged your mortgage for you – then you might also be paying too much for cover. 

Get a life insurance quote online and we can help you to save money on your protection premiums.

Travel costs

In October 2022, petrol and diesel prices hit their highest level since 2012. The RAC have also predicted that petrol could reach £1.50 a litre this year if oil prices increase further.

Shopping around for fuel and driving efficiently can help you to save money. Also, investing in a regular service could be worthwhile as it may ensure problems are dealt with before they become serious (and expensive).

In addition, rail fares are due to rise by 3.8% in March – the “biggest increase for almost a decade”, said Sky News.

Try and book a few weeks in advance as this can help you to get the best fare. See if you’re eligible for a railcard which can save you a significant amount, or use “split ticketing” services which can help you reduce the cost of travel.

We can help you to tackle the rising cost of living

In the next few months, you’re likely to see your income squeezed. Your take-home pay is likely to fall when the tax rises come into force in April, and the cost of things you buy, from your home energy to your weekly shop, will also become more expensive.

While we can’t control inflation, we can help you to save money on your life insurance, Critical Illness cover, and income protection.

That’s because we work with dozens of the UK’s leading insurers and so we can scour the market to find the right cover at the right price.

Whether you want to ensure you have the peace of mind that your loved ones will receive financial support if the worst happens, or you have existing insurance and you want to see if there is a cheaper alternative available, we can help.

Get a life insurance quote online now, or speak to one of our experts to find out how we can help you to save money.