United Kingdom

How October will bring money misery for many

Many Britons are set to face the biggest squeeze on their finances in years next month as the Government cuts support introduced at the start of the pandemic, while bills and household costs climb.

October marks the end of the furlough scheme, the £20 a week universal credit uplift, stamp duty holiday and the VAT holiday for businesses.

Meanwhile, the energy price cap coming in on 1 October is going to push energy bills up by £140 on average, just as the supply chain crisis is sending food prices higher. 

Financial worries: October marks the end of Government support, like the furlough scheme

Families could be £107 worse off every month due to higher food and energy costs and the withdrawal of the universal credit uplift, according to new research from insurer Royal London. 

We look at the ramifications of these looming changes, how they will hurt your pocket, and what you can do to limit the damage.

Furlough scheme - ends 30 September

A rise in people being made redundant or seeing their working hours shrink is expected when furlough ends on 30 September, reducing income for some households.

While the number of people on furlough has gradually diminished since the height of the pandemic, some 1.6million people were still receiving the support at the end of July, the latest Government figures show.  

At the same time, there is strong demand for workers in some industries - such as  for lorry drivers - with the stock of job vacancies across the country having risen above 1 million in August, surpassing the previous record set in July, the Bank of England said last week. 

'It's as yet unclear whether the re-opening of the economy will mean those still on furlough will have jobs that they can pick back up, or whether their roles are now at risk of redundancy,' said Kate Smith, head of pensions at Aegon.

'We've heard a lot about labour shortages in certain sectors but that doesn't necessarily mean those out of work will rush into roles they may not want or may be unsuitable for.'

The expected rise in unemployment post-furlough is set to put long-term savings to test, while those who lose their jobs will also lose out on future workplace pension benefits. 

'Any large rise in unemployment following the wind-up of the furlough scheme could put the brakes on the significant progress of auto-enrolment and workplace pension participation rates,' Smith added.

'Individuals who lose their job not only face a loss of income but will also no longer contribute to their workplace pension, and benefit from 'free' money from their employer. 

'Gaps in pension saving will only exacerbate the differences in the financial health of those whose jobs have continued unaffected during the pandemic and those who have faced difficulties.'

Universal credit - £20 uplift ends 6 October 

The Government introduced a temporary £20 increase to universal credit payments in response to the pandemic in April last year, but the scheme is set to officially end on 6 October. 

Close to six million people currently claim universal credit, almost double the three million before the pandemic, with almost 40 per cent of them classed as being in employment. 

Thanks to the boost, a single person aged 25 or over has gone from earning £317.82 to £409.89 a month, a difference of £23 a week or £1,104.84 a year.

In that case, the £23 a week boost made up more than a fifth of the amount they were paid. 

Citizens Advice has warned that a third of people on universal credit will end up in debt when the uplift is removed, with the average shortfall set to be of around £50 a month. 

Research by another charity, Turn2us, has found that over half of people on universal credit will struggle to pay their bills when the cut comes into effect, with a further one in four unable to afford their rent or mortgage payments. 

'Due to the way Universal Credit is tapered as earnings increase, it's not just a case of people picking up an extra couple of hours of work to help fill the gap, instead they will likely have to make tough decisions about what to pay for and what to cut from the household costs,' notes Laura Suter, head of personal finance at AJ Bell.

'Anyone who will be hit by the cut should check they're getting all the benefits they're entitled too – Citizens Advice is a good first port of call for help navigating the system.'   

Thomas Lawson, chief executive at Turn2us, said: 'The £20 per week cut to Universal Credit was already going to leave many families struggling to keep up with the cost of living. 

'This, now combined with a sudden surge in energy prices, could spell disaster and plunge thousands more people into financial insecurity or even poverty; especially those of us whose financial resilience has been worn away by the pandemic.'

Stamp duty holiday - ends 30 September

The full stamp duty holiday has already come to an end, with the nil-rate band - the portion of a property purchase buyers don't need to pay stamp duty on - reduced from £500,000 to £250,000 at the end of June.

The tax break, which saved buyers up to £15,000 on their house purchases up until then, was cut back, with the maximum saving currently capped at £2,500. 

But from the 1 October, that will go too, as the nil-rate band will revert to the normal £125,000.

Stamp duty has been blamed for pushing house prices higher over the past year, with many experts anticipating a drop in demand, and hence prices, after its end. 

And demand did indeed fall off a cliff between June and July, with the number of property transactions plummeting by 63 per cent, according to official figures from HMRC. 

But many believe prices will hold up well in the coming months thanks to cheap mortgages and demand continuing to be driven by people looking to relocate to larger homes in the countryside in the wake of the pandemic.

'While there is likely to be a surge of property purchases pushed through before the deadline and a small drop in the month after, the early signs are that the property market isn't headed for a large crash – particularly while borrowing is still so extraordinarily cheap,' Suter said.

VAT reduction - ends 30 September  

The reduced VAT rate on food and soft drinks for hospitality businesses was introduced during the pandemic to help out struggling pubs and restaurants, and has been extended a couple of times. 

However, it will now come to a close at the end of the month - and could see businesses hike prices to customers.

Hospitality businesses could hike prices to customers as VAT reduction ends in October

On 30 September 2021 the current 5 per cent reduced rate will rise to 12.5 per cent, which will last until 31 March 2022, when it will rise back to the old standard rate of 20 per cent.   

'Many hotels and restaurants decided to keep this reduction for themselves rather than pass it on to customers, to help shore up their finances post-pandemic,' said Suter.

'With food and energy costs rising it has provided a cushion for businesses and may have helped them put off increasing prices. 

'But once the rate shoots back up it will be another squeeze on margins for businesses and means we'll probably see higher prices when going out to eat or booking a trip away.'

Energy price cap - comes in on 1 October

On top of seeing much of Government support scrapped, many families and businesses are also facing rising energy bills thanks to the energy price cap.  

Some 11 million households on their suppliers' default energy tariffs will see an increase of £139 a year to £1,277, while bills will also increase by £153 to £1,309 a year for 4 million pre-payment meter customers.  

The increased bills will start from 1 October and last for the following six months until the cap is reviewed again.

'Usually you'd be far better off getting off your provider's standard variable tariff and locking in a fixed-rate deal, but the energy market is so barmy at the moment that no one is offering a fixed deal for a cheaper price than the energy cap,' Suter says.

'This means everyone needs to face up to rising energy bills, just as we head into the colder months.

'If your deal has ended you need to weigh up whether you want to secure a fixed-rate deal now, at a higher cost than your current price, with the expectation that you'll be protected from rising energy prices. 

'Or you can stick with the energy price cap rate and gamble that recent gas price rises end soon.'

Households struggling to pay their bills can also contact their supplier or ask for help from a debt advice charity.   

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Rising inflation and food costs

Inflation fears were fuelled again this month, when the headline CPI rate recorded its largest jump ever in August to 3.2 per cent - with the Bank of England predicting it could soar above 4 per cent by the end of the year. 

Contributing to the rise was a jump in the price of food and drinks, partly as a result of the supply chain crisis gripping the country.

Food and non-alcoholic drink prices rose 1.1 per cent between July and August, and by 0.3 per cent over the year, according to the latest figures by the Office for National Statistics. 

The average price of a pint in the pub across the country could soon pass £4, the ONS said

The average price of a pint in the pub across the country could soon pass £4, the ONS said. 

Last year, the average household spent £277 a month on food expenses, but the latest inflation reading suggest this could increase to £285 a month this year, according to analysis by Royal London. 

'Anyone who has been to the supermarket recently will have noticed that their weekly bill has been rising,' said Suter. 

'A combination of shipping issues, driver shortages, supply chain issues and a leap in demand have all lead to a spike in prices – in July we saw the largest monthly rise in food costs. 

'While you can't directly combat rising prices, you can reduce your food bill. There are lots of offers out there for using online grocery delivery services for the first time, which can get decent discounts on a shop. 

'Or you can go back to the old fashioned methods of sticking to your list, meal planning and budgeting.'

Five budgeting tips 

Insurer Royal London, which has partnered with charity Turn2us, has outlined five steps you can take to save money.

1. Write a monthly budget

If your income has reduced, you will have to consider your spending and one of the best ways to do this is by working out a monthly budget.

Start by working out how much money you will need to cover your monthly essentials such as your rent or mortgage, utility bills, council tax and any other debts, such as credit cards and/or personal loans. Once you've done this, you should have a clearer picture of how much money you have to spend on areas such as your weekly shop.

2. Check your benefits entitlement

It can be complicated to work out what state benefits you are entitled to. Charity Turn2Us have a benefits calculator to check your entitlement to means-tested benefits. The results page will tell you which means-tested benefits and tax credits you may be entitled to and how much you may receive.

3. Shop around and switch your household bills

You can save money by shopping around and looking for better deals for energy, broadband, and car and home insurance.

Normally, you would be able to save money on energy bills by switching from the standard variable tariff to a better deal. However, volatile energy pricing means that this may be the cheapest option at the moment. It's worth double checking with your provider that you are on the best tariff available to you.

Broadband tends to be more expensive for those who are 'out of contract' - 20million customers according to Ofcom are 'out of contract' and therefore likely to be over-paying.

4. Check your eligibility for help with council tax

If you don't think you will be able to afford to pay your Council Tax because you're now on a lower income or claiming benefits, you might be eligible for a council tax reduction. What you get will depend on where you live, your circumstances, your household income and whether you have children or other dependants living with you.

5. Review your subscriptions

If you are having to get by on a reduced income, your focus should be on covering essential costs such as your mortgage or rent, utility and food bills and cutting back on non-essential spending.

It's worth having a quick look through your bank transactions and credit card statements over the last few months to remind you of any regular payments that come out.

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