Cardiff University: Further support for households may be needed as cost-of-living squeeze continues

Energy price hikes and tax rises will leave Welsh households an average £600 a year worse off, even after measures to assist cost-of-living are applied, new analysis shows.

The briefing paper, from Cardiff University’s Wales Governance Centre, shows the poorest households will be hit hardest and price rises will further limit their ability to purchase essential goods and services.

Last month, the Welsh Government announced it was allocating nearly £340 million towards cost-of-living measures – considerably more generous than other parts of the UK. But researchers predict further support may be needed over the coming months.

Report author Cian Siôn, part of the Wales Fiscal Analysis Team, said: “Despite the interventions made by the UK and Welsh governments, a combination of inflationary pressures, tax rises and trailing income growth mean householders in the UK face the biggest squeeze in living standards in decades.

“The worrying developments in Ukraine have increased the likelihood that energy prices will remain high. Although the measures introduced by the UK Government will alleviate the impact on households to some degree, and the additional targeted support announced by the Welsh Government has helped curb the impact on those on the lowest incomes, households of all incomes will still be worse off this spring.”

Both the UK and Welsh governments have announced measures to help mitigate the impact of rising prices – particularly the soaring cost of energy – on households.

These include the UK Government’s Energy Bill Discount Scheme and a range of schemes from the Welsh Government, including council tax rebates, winter fuel support and discretionary funds to those experiencing financial hardship.

But using a tax-benefit model*, researchers have calculated that even after this support is taken into account for households, they will still be on average, £600 a year worse off from April onwards. This analysis does not factor in the general cost of goods and services – which is also set to increase – as well as a further increase to the energy price cap next Autumn.

In January, the 12-month Consumer Price Inflation (CPI) rate reached 5.5%, up from 5.4% in the 12 months to December 2021. The Bank of England now expects the CPI rate to peak above 7% in Spring 2022 – its highest level in three decades.

Cian Siôn added: “The next few months are going to be challenging and these pressures will hit those on the poorest incomes the most. We know that even before recent price rises, households with the poorest incomes spent more than twice as much on housing and utilities as a proportion of their disposable income than their counterparts on the highest incomes.

“In addition to this, there remains considerable uncertainty about how high the inflation rate will climb and how entrenched price rises will be across all aspects of our lives. If high price levels persist for a prolonged period without real growth in income, this may not be the last time governments are compelled to intervene to assist with the cost of living.”