Money Saving Expert Martin Lewis has addressed a stark warning letter to Government ahead of a 'bleak' winter. The financial journalist stated he needed to warn the Conservative Party leadership candidates of just how bad things are ahead of a new appointment in September.
In the ten-minute video, he said people needed to be aware in order to take preventative measures where possible. He said: "The winter coming is going to be bleak. I believe unless action is taken, we are facing a potential national financial cataclysm. As individuals, you need to be aware of that so you can take, if possible (and to be honest, it's not always possible), preventative action yourself.
"Yet more so, the Conservative Party leadership candidates, one of whom will soon become our Prime Minister, need to know how stark things will be on the day they take office. So far, the debate seems to have mostly ignored the fact we are sitting on a financial time bomb that's due to explode in September. And those candidates, in truth, are the only ones with a chance of defusing that catastrophe."
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There were several points covered by the Money Saving Expert about what's coming and why he's so worried about the winter. He hoped by addressing these issues publicly he may help "avert some of those potential disaster scenarios".
"Of course, energy bills are at the centre of this," he continued. "But the shockwaves are likely to ripple out to all areas of people's lives., anyone struggling, anyone with a mortgage, credit cars, there are big impacts in those areas too."
Focusing on energy, Martin Lewis said: "It used to be we had a competitive energy market, you could switch tariff or switch firm to save quite a substantial amount. But that's gone. There's virtually no competition now.
"We have regulated pricing in the main by dint of Ofgem's price cap. Now, that isn't an absolute cap on what you pay for energy, what you pay depends on what you use: if you use more, you pay more. Instead, every six months, and soon to be every three months, there is a cap on the unit rates and standing charges of gas and electricity if you are on a standard variable tariff, which most people are.
"And what's crucial to understand is the future price cap rate is mostly predictable because it's dictated by the algorithm that has been published by the regulator Ofgem. And that is based mainly on the year ahead wholesale prices, which we also know - there are different types of wholesale rates so just be careful on that."
With wholesale rates spiking again as they have in the past few weeks, the outlook isn't cheap. Using the analysts Cornwall Insight, Martin Lewis said "predictions are frightening". He said the "awful, sickening news is that it's now predicted to rise 65% again" by October.
He continued, explaining prices could keep rising until "next April we'll still be paying on typical use over £1,000 a year more than we are now."
"To put that into perspective, that means from October, typical energy bills will cost over a third of the new state pension and more than a third of those on the old state pension. Well, it's just not affordable. And remember, the £400 reduction that is due to come off all bills in October - it was announced in May by the former Chancellor and Conservative leadership candidate, Rishi Sunak - well, that help has already been swallowed up.
"Of course, on top of that, there's more money available for those on means-tested benefits, those on the state pension, and people with disabilities. Yet the amounts being given were all based on where we were back in May. And that is not enough now. Remember that direct debits will be rising before the new Prime Minister is in situ. And that means people will be panicking, there's a risk to mental as well as physical health."
Martin Lewis also referenced mortgages in his video letter, talking about how the cheapest interest rates in October 2021 were just below 1 per cent, and now they're just below 3 per cent.
"My concern is when people try and get that cheapest deal, they must pass an affordability test. And as the cost-of-living crunch bites, many of those who were just above the limit, hundreds of thousands, or potentially millions of people, will fail. And that will mean they might have to move to their much more expensive standard variable rate. Ironic, isn't it? They can't afford a cheap rate. So how can they afford to pay much more?
"Or some people will just pay a higher rate mortgage, not get the cheapest fix, others will not be able to move lender and will be stuck on their own lender and there'll be no advantage of competition."
The financial journalist also stated that a mandate for much better forbearance measures is needed for unsecured debt. He added: " I suspect after the 1 October, [credit card debt] will explode. And an explosion of consumer debt is crippling to individuals and the economy. It means many people just about managing things will turn into people not managing at all.
"We must look at the banks here. Their debt interest rates are going up. But their savings rates are not going up as much. Either that needs to be fixed, or we need to mandate much better forbearance measures for those in the worst type of debts."
He finished his speech by stating the cost of living must be the focal point of the debate. He said: "There's much more I could talk about. The explosion of buy now, pay later and the fact that won't be regulated now until 2023 after the hardcore cost of living crisis, petrol prices, the lack of regulation on heating oil and LPG, the food prices in the shops.
"But hopefully the picture I've painted sets the scene of what's coming. And remember too, it's all very well to talk about inflation dropping, but that doesn't mean prices will go down or back to where they were. All it means is they'll stop rising as quickly.
"To individuals listening to this, if you've got financial room to manoeuvre, you need to be battening down the hatches now. Re-doing budgets and being prepared to use savings.
"But as a nation, we have a problem with financial capability and financial resilience. And to that, to weather the coming storm, I speak directly to those candidates: this cost of living issue needs to be at the front and centre of the debate. More intervention and action is needed and it needs to be quick. This is a hard deadline coming. Without more action, I worry lives could be lost."
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