...but individuals will have to do most of the heavy lifting to fortify their finances.
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Many consumers have been forced to cut back on spending and stretch their cash further as inflation takes hold of the economy. But the impact is felt most among those on the lowest incomes, with the least room to manage.
“The measures announced by the chancellor go a long way in alleviating the cost-of-living burden to those who need it most. Combined, the new and existing cost of living support measures announced earlier in the year offer financial support worth up to £1,200 to the nation’s most vulnerable and £550 to most of the population – sums that are not to be sniffed at.
“The doubling of the energy discount scheme to £400 and the scrapping of the plan to get consumers to pay back the sum later is welcome. The original rebate and clawback arrangement was complicated and would have resulted in consumers being stuck with higher energy bills for a longer period of time.
“However, the measures do not completely offset heightened costs. The energy price cap was £1,271 in March this year and is set to balloon to £2,800 come autumn, according to Ofgem estimates. That’s an additional cost burden of £1,500 - and then there is the heightened cost of food and petrol to contend with, among other [things].
“These pressures would have been devastating for low-income households without the new financial aid package but remains lifestyle-changing for those on decent middle incomes.
“Consumers are being hit from all sides by rising prices, and with wage growth failing to keep up with the current trajectory of inflation, many have found themselves at the brink of financial breaking point. So, any measures to help support consumers through the cost-of-living storm is welcome. But the fact remains that individuals will have to do most of the heavy lifting to fortify their finances.
“Rising inflation means we're spending a substantial amount more on same thing than we did in the past. It is important now more than ever to pay extra attention to where all your money is going. It might sound obvious but a good first step is to do some old-fashioned budgeting, going through bank statements with a fine-tooth comb, categorising your spending and working out what goes on monthly bills, food, travel and other areas of expenditure.
“Also consider what protective steps you can take now to avoid money worries later. If you are struggling to stay financially afloat, make sure you’re getting all the support you’re entitled to.”
Energy Profits Levy
- A new poll of just under 1,500 interactive investor website visitors between 24 May and the morning of 25 May 2022, reflects a variety of views on this nuanced issue.
- Some 53% of consumers think a windfall tax on oil and gas companies to help ease the cost-of-living crisis squeeze would have an adverse impact on their pension.
- When asked if they would support a windfall tax even if it hurt their investments, 62% of investors said they wouldn’t – but over a quarter (28%) said they would.
Myron Jobson says: “The cash to fund these measures. will be raised by the so-called Energy Profits Levy – a windfall tax in all but name.
“While the majority of respondents to our survey appeared spooked by the adverse impact a windfall tax on gas and oil companies might have on their investments, over a quarter support it if used to ease the cost of living [crisis].
“It is important to remember that investors are consumers too and are not only thinking about their profits. Not all investors are high net worth individuals, and many have been caught between a rock and a hard place amid the escalating cost of living crisis.
“Misinformation about the exposure to energy companies in pension funds is perhaps one of the reasons why most respondents to our survey believe the windfall tax would have an adverse effect on their pension. While applying a windfall tax could impact the share price performance and dividends paid out by impacted energy companies, it is a myth that such firms make up a significant portion of most pension funds today.”
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