Never before has there been an economic experience quite like this.
Never before have households around the country faced as severe an increase in their bills as they will this year.
The sharp rise in energy bills which kicks in on Friday is perhaps the most obvious of all these price increases. But this is not the only big change we will see reflected in our outgoings in the coming months.
There is the panoply of changes to our taxes, some of which will be negated by the measures in the chancellor’s spring statement.
There is the rising cost of living, pushing up costs of items in the shops. There is the real-terms cut soon kicking in on benefits and pensions, not to mention the end of the VAT aid for hospitality businesses.
Even were it not for the tsunami of rising price pressures from overseas, this would add up to a serious challenge for Britons’ living standards. Put it all together and you see why the Office for Budget Responsibility expects this year to see the biggest fall in real household disposable incomes in modern record.
However attempting to get a grip on what this means in practice for the average household is very difficult indeed.
In part this is because there is no such thing as an average household. In part it is because the range of measures implemented in the spring statement are designed to soften the blow for different income groups.
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To see what I mean, let’s try to take a step back and think about what’s happening here, starting with the “average household”.
Now, according to Ofgem the “average energy bill” will increase by £693 to £1,971 as of today. This is, we all know by now, an unprecedented increase, but those inverted commas really matter, since this number is really just an illustration.
In fact, when Ofgem calculates the price cap it is putting a price limit not on a total bill – illustrative or otherwise – but on a unit of gas or electricity. So while some households might see an impact similar to the numbers they read about in headlines, in practice the dent in their incomes could be very different – and depends in large part on how much power and heat they need and use.
Even so, let’s stick with our “average household” and consider the other things coming their way.
Up until the recent spring statement, the median household was facing a big squeeze from rising taxes: the health and social care levy and frozen income tax thresholds which, all told, were set to cost a further £430 or so.
However, the spring statement, with its increase in the National Insurance threshold, will wipe out £330 of that.
The cut in fuel duty should reduce families’ costs by a further £100 or so – though note that this figure doesn’t take any account of the increase in costs charged by petrol companies.
On top of this, the chancellor’s council tax cut and energy bill rebates should reduce costs by the “average household” by a further £190.
If you’ve been doing your sums you’ll have worked out that all told – once you’ve totted up the benefits of the National Insurance threshold increase and subtracted the health and social care levy – the net impact of the chancellor’s actions is to increase the “average” household income by £360 or so.
In other words, that’s roughly half the increase in the cost of the average energy bill.
But now let’s consider the very richest 5% of the population. For these people, the net impact of the chancellor’s measures is to reduce their incomes by more than £2,000.
That is on top of bills which could, on the basis of what we know about the distribution of energy bills, could rise to an annual average of £3,000 this month.
Now, many families in each of these income brackets will be able to keep financially afloat even as prices and costs rise.
But the point remains that we have rarely, if ever, seen such abrupt cost increases happening so rapidly in this country. It is a particularly brutal form of inflation.
And while the chancellor’s recent measures will slightly soften the blow, they will come nowhere near eliminating the pain for millions across the country.