The UK's cost of living crisis has affected millions across the country - and the outlook for 2023 looks increasingly grim, as experts fear it could last until the second half of the year. 2022 is likely to be remembered for the sharpest drop in household incomes on record due to the dramatic surge in inflation rates sparked by the Russian invasion of Ukraine.
Experts fear the current cost of living crisis is likely to last until the second half of next year, but inflation levels may not return to previous norms until 2024.
MoneySavingExpert founder Martin Lewis has been a pivotal figure in offering crucial financial advice and warnings to struggling families to help them get through the worst of crisis. His expertise was recognised at the National Television awards where he lamented a "pretty horrible year financially" and warned of a brutal 2023, Lancs Live reports.
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With energy bills almost doubling this winter and looking set to rise again by more than 40% next year, Martin has taken a detailed look at the current situation and how much higher bills might climb in 2023 and what support people should get. His MSE team has also looked at what's in store for mortgages next year and whether you should fix or not.
It comes after Chancellor of the Exchequer Jeremy Hunt confirmed last month that energy bills will typically rise to £3,000 as of next April - surging from the current cap of £2,500. This compares to a price cap of £1,277 this time last year, however it is a substantial step down from the £3,739 that energy analysts at Cornwall Insight predicted.
The Energy Price Cap Guarantee will also be extended further than April 2023, with an average of £500 in support expected to be available for each and every UK household. Speaking on the Martin Lewis Money Show, he said: "Currently, the energy price guarantee is set on £2,500 a year for somebody who has typical usage - use more you pay more, use less you pay less. From April, it will be going up to £3,000 on typical energy usage.
"But what's important to understand is that, staggeringly, is a subsidised price. That isn't based on wholesale prices, that's subsidised. Now look, if we'd stayed on the old price cap system, we would have been on way more now on the old price cap system than the energy price guarantee. The difference is what the Government contributes to everybody's energy bills, the poorest and the richest in society - I'll leave you to make your own minds upon that."
Martin warned that without the £400 energy discount next winter, households will likely be paying on average £3,000 a year on their bill. He said: "You've all got something to help your energy bills this winter; £67 a month, over six months, which is £400. So let's get rid of that and let's look at the £400 that you've got this winter. That effectively reduces your energy bills and everyone's energy bills, but that is not being paid next winter.
"So for somebody on typical use, pro-rata, they're paying the equivalent of £2,100 a year, this winter. Next winter, it will be £3,000. Energy prices nearly doubled from last winter to this winter, and they will be going up again by 43% - on average - next winter. And if you use less, losing that £400 has a bigger effect, and your percentage rise, I'm afraid to say, will actually be more."
Government grants
The consumer champion has urged people to make sure they are eligible for any government grants. He also said social tariffs could be introduced to make things easier for those who don't usually switch.
Martin said: "This winter we're in the middle of getting those £66 or £67 a month - you should be getting them if you pay for electricity. However, that won't happen next winter. For those on benefits and tax credits, the £650 has mostly been paid - everyone who's eligible should have got it by 30 November, the vast majority have got that now. Next winter, that's going up to £900 - so it covers some of the gap of the lost £400 for those on benefits but not all of it.
"For those with disabilities, you should have had £150 and you get the same amount next winter. For state pensioners, the £300 that goes on top of the Winter Fuel Payment (which is £100 to £300), that starts being paid from 23 November and you should have got it by the middle of January 2023 - that's also going to be £300 next year."
He added: "The energy price guarantee in 2023 may become volumetric. What that means is you'll get cheaper rates up to a certain amount of usage and if you use more, then the rate will get higher to encourage people to use less, more of a subsidy on a lower rate - it's a consultation.
"Then from April 2024, I suspect they're hoping we go back to that competitive switching market, they want to look at a social tariff, something I've campaigned on for years. So I'm pleased to see that if we do get back into that situation, that means those people who never switch and can't switch and don't understand it, you know - someone with onset dementia who's never going to engage in the competitive market - would automatically be put on a cheaper tariff and will not have to switch anymore."
Universal Credit plea
Earlier this month Martin Lewis urged households earning less than £40,000 a year to check if they're entitled to extra financial support. He said millions of households could meet the eligibility requirements to get Universal Credit without realising it, and a simple benefits calculator could help people to find out
He said: "There are up to seven million of you who are eligible and who are missing out. I am not, repeat, saying you will get it. I am saying it's definitely worth 10 minutes of your time to go onto an online benefits calculator- there are a good few of them out there - and it should take about 10 minutes to put all of your details in to see if you are due."
Benefits calculators, such as this one highlighted by the Department for Work and Pensions, allow households to input their income and other details to check their eligibility for benefits. The online assessment takes around 10 minutes to complete.
Mortgages
MoneySavingExpert spoke to mortgage experts and financial market analysts to get their predictions for 2023. The consensus is that rates on fixed mortgages will fall next year and that tracker mortgages could present a good medium-term solution for borrowers waiting to see where the market is headed in 2023.
Over the past 12 months interest rates on fixed mortgages have shot up dramatically while the average rates on a two-year fix recently dipped back below 6%. However, this is still far higher than average rates of 2.34% a year ago.
According to the MSE website, variable rate mortgages, like trackers and discount deals, are growing in demand as rates on these are far better than those on fixes. According to Ray Boulger, while fixed-rate deals made up 95% of new mortgages until recently, this figure is expected to drop to around 75% in 2023.
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