How to cut costs in an ‘Agonising April’ for personal finances

interactive investor comments on the £73 a month rise in bills.

• interactive investor estimates that hikes in energy bills, council tax, broadband prices, mobile phone tariffs and water and sewage bills are set to add an extra cost burden of £73 to UK consumers, on average.

1 April may mark April Fool’s Day, but the rise in the cost of key household bills from the start of the month is no laughing matter for those struggling to stay financially afloat amid the cost-of-living crisis.

The rise in the energy price cap is set to add an extra £58 a month (£693 a year) to the average energy bill from the start of the month. More financial misery will be piled on to consumers as council tax, broadband prices, mobile phone tariffs and water and sewage bills are also set to rise in April.

interactive investor estimates that combined, these costs will add an extra £73 cost burden to consumers, on average. The calculation excludes increases in the price of fuel and groceries.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The winter of discontent for personal finances is set to rage on in the months of spring and beyond, with the price of seemingly everything going up. Withstanding the cost-of-living squeeze is hard enough for many as is, but the added cost pressures set to come into play in April threatens to obliterate even the most finely tuned budgets.

“The most eye-watering price rise will be the hike in the energy price cap, which will increase energy bills by almost £58 on average (£693 a year). Although warmer weather means that we won’t be turning on the heating as often, we will still be paying more to do things like taking a hot shower, do laundry and cook.

“While the rise in council tax, water and sewage bills, mobile phone tariffs and broadband prices might appear modest when viewed individually on a monthly basis, the costs are significant combined.

“Consumers will also have to contend with the rising cost of shopping, with food inflation jumping to 3.3% – its highest rate since March 2013 - while non-food inflation reached 1.5%*. The price of fuel is another pain point, with the cost of filling up the tank remaining stubbornly high despite a 5p a litre cut to fuel duty, which was supposed to help matters.

“The 1.25% increase in National Insurance contributions is an additional hassle. However, the rise in the income threshold at which you start to pay national insurance to £12,570 in July will take some of the lowest earners out of paying the tax.”

Some reprieve

“The £150 council tax rebate, as part of the government's initiative to help households with rising energy costs, offers some reprieve for consumers. In October, households will also get £200 discount on energy bills, which has to be repaid over five years.

“Lower earners will see a boost in their wages when the National Living Wage increases by 6.6% to £9.50 an hour at the start of April for workers aged 23 and over. The government is also introducing increases between 4.1% and 11.9% to each of the National Minimum Wage rates for younger workers and apprentices.

“Those on state benefits such as Universal Credit will see their payments rise by 3.1% in line with the Consumer Price Index (CPI) for the year to September 2021. The way in which we increase benefits is not befitting of the cost-of-living crisis we now face, and the current course of direction worsens the squeeze on Britain’s lowest income families.

“It is important now more than ever to pay extra attention to your financial well-being and consider what protective steps you can take now to avoid money worries later. If you are struggling to stay financial afloat, make sure you’re getting all the support you’re entitled to.”

Practical tips to ease the cost-of-living burden

1. Make small changes to your budget across all categories

“Instead of making swingeing cuts to a couple of areas of expenditure, making smaller cuts across a broader range of spending can be a more palatable way of cutting costs. For example, you don’t have to completely forgo your daily coffee purchase, but you can cut back on how often you buy them.”

2. Shop around for the best deals

“You won’t know whether you are paying over the odds for things unless you shop around for the best deals. For example, if you've been with a broadband provider for a while, it is likely that any introductory offers will have expired, and you might be paying more than you need to. The same goes for mobile phone contracts. Shop around to see if you can get a better deal.”

3. How to save on food bills

“Shop around for the best deals – especially for high ticket items. Even simple things such as opting to purchase a store brand equivalent of traditional larder products can help to cut down the cost of groceries. If you’re anything like me and find it impossible to distinguish between store brand and premium brand rice, opting for the cheaper version can help save on cost, without compromising on flavour.

“Consider buying items in bulk so that you are not constantly spending as prices continue to climb. It is also worth taking advantage of supermarket loyalty schemes - such as Tesco Clubcard and Nectar card – which can give you access to unlock big discounts and other exclusive rewards.”

4. Review subscriptions

“From Netflix to newspapers, we pay for many goods and services that we use on a daily basis through monthly subscriptions. It is important to keep tabs on how many subscriptions you have and consider those that you no longer need or have been meaning to cancel but have never gotten around to it. Removing a £10 subscription from your monthly outgoings might not sound like a lot, but this amounts to £120 over a year – not to be sniffed at.

“Sharing streaming subscriptions within your household can also be a cost-effective way to save money. Most streaming services allow users to create separate accounts that can be personalised based on your preferences.”

5. Mobile phones

“Those approaching their end of their mobile phone contracts should consider their options. You could save big by skipping an upgrade. Sure, you might be missing out on a few new bells and whistles but forgoing an upgrade could save you a pretty penny that could shore up your financial position amid escalating prices.

“If you are happy with your current phone, then stick with it and move on to a SIM-only deal, which is cheaper than a contract that comes with a phone.”

6. Salary sacrifice

“The impending hike in National Insurance contributions has bolstered the allure of employment salary sacrifice schemes, as they can be used to offset the rise. This arrangement allows employers to reduce employees’ salary and pay the equivalent amount into a non-cash benefit such as pension contributions and a cycle-to-work scheme. Think of a pension as deferred income and this seems like a good way to reduce your overall NI bill without reducing your income, if you are happy to take it after age 55 instead.

“These benefits reduce the NI payable by the employee as well as the employer. However, a lower salary can affect entitlements such as maternity/paternity pay, mortgage applications based on one’s income, and some state allowances. As such, people should always consider how such benefits could impact their finances more broadly.”

Notes to editors

Assumptions

*Source: BRC-NielsenIQ Shop Price Index

*Mobile phone tariff rise: Based on a £50 monthly O2 contract increasing by RPI rate of inflation announced in February (7.8%) plus 3.9% - 11.7% in total..

Broadband tariff rise: Average tariff of £33.03 from Money Super Market’s nationally representative sample.

Water and sewage bill increase: Average water bills for the coming year are forecast to rise by £7 to £419, according to Water UK.

Council tax rise: Average monthly council tax bill to rise by £65, worsening cost of living crisis, according to The Chartered Institute of Public Finance and Accountancy.