Cost of living crisis: 2022 'could be worse than the financial crisis'

·Political Correspondent, Yahoo News UK
·4-min read
Britain's Prime Minister Boris Johnson reacts during a virtual press conference to update the nation on the status of the Covid-19 pandemic, in the Downing Street briefing room in central London on January 4, 2022. - British hospitals have switched to a
The director of the Institute for Fiscal Studies has warned 2022 could be worse than the 2008/09 financial crisis. (Getty Images)

Boris Johnson has been warned that the growing cost of living crisis could leave Brits worse off than the financial crash of 2008.

The 2008/09 recession was one of the worst on record, with hundreds of thousands of businesses closing and an estimated 3.7m people being made redundant as a result.

Rising inflation, tax increases, and soaring energy bills have been cited by experts as the key factors driving up the cost of living in 2022 - with predictions that the average household in the UK will be £1,200 worse off in the coming months.

Paul Johnson, the director of the independent think tank the Institute for Fiscal Studies (IFS), said tax rises, fuel prices, and inflation are creating a potentially devastating environment for households across the country.

Read more: What is behind the cost-of-living ‘crisis’ and what can we do to cope?

He said: "If you are someone on average earnings who is going to be hit by a tax rise as a result of the reduction of the personal allowance, and a tax rise because of national insurance, and an extra potential several hundreds pounds a year from fuel prices, then this could well be worse than the financial crisis.

"There's going to be inflation of six or seven per cent and earnings not going up anywhere near that fast – so put those two things together and I find it hard to think of a March-April period which will have been quite so bad. This is a combination of a big tax rise and falling real earnings. It's not pretty."

When asked if the prime minister agreed with the claim that this year is set to be worse than the 2008/09 recession for Brits, his spokesperson said: “We recognise that people are facing pressures with the cost of living", and pointed to pre-existing support.

And Paul Johnson is not alone in his concerns, with some experts warning that 2022 could be catastrophic and affect "the vast majority of households".

Watch: Britons facing 'cost-of-living catastrophe' with average household £1,200 worse off, experts warn

The Resolution Foundation, think tank for low and middle income households, said in December that next year will be the "year of the squeeze".

"Rising inflation has focused minds on the cost of living squeeze this winter," said the think tank.

"These pressures are likely to build in the new year with further price rises outstripping pay growth.

"The spring looks particularly difficult, with April bringing a cost of living catastrophe affecting the vast majority of households: soaring energy bills and significant tax rises will see an annual income hit to the typical household of over £1,000."

Read more: 'Do I pay for food or do I pay for heat?': Energy bills surge squeezes poorest

Elsewhere, Money Saving Expert founder Martin Lewis warned of a "seismic" impact from rising energy bills and called for a "substantial intervention".

"We are going to see a minimum 50% increase in energy prices in the system and that is unsustainable for many," he said.

There have been calls from within the prime minister's own party to cancel tax on fuel and energy bills in response to the cost of living crisis, with 20 MPs - including five ex-ministers - penning an article in The Telegraph on the issue.

"We hardly need to point out that high energy prices, whether for domestic heating or for domestic transport, are felt most painfully by the lowest paid," they wrote.

And senior Conservative, speaker of the House and cabinet minister Jacob Rees-Mogg, has reportedly broken ranks and called for the chancellor to cancel planned rises in National Insurance from April.

Undated file photo of a gas ring on a home cooker in London. Soaring gas prices consigned a string of energy suppliers to the graveyard in 2021, and will lead to runaway household bills next year as the sector continues to struggle. Energy suppliers had been paying 54p per therm of gas at the beginning of the year. By September, that had reached more than �3 and peaked even further to �4.50 just before Christmas. Issue date: Tuesday December 28, 2021.
Energy bills are set to soar by up to 50% in 2022. (PA Images)

Rishi Sunak said on Thursday he understands "people's anxiety or concern about rising prices and inflation" and that he was "always listening" to the them - However has reportedly ruled out cancelling tax rises and rejected calls for cutting tax on energy bills.

On cutting National Insurance rises, the chancellor said: "I think people's priorities are for us to invest in the NHS to invest in social care, and we need to make sure that those investments are funded sustainably.

"That's what we're doing and now we've got to get on and deliver that change for people."

And the prime minister last week described cutting tax to energy bills as a "blunt instrument" that would benefit families that aren't struggling with bills.

When asked if modelling existed on what the impact of National Insurance rises will be on Brits amid the growing cost-of-living crisis, Number 10 pointed to the Treasury - who provided modelling from September 2021, when energy prices and inflation were significantly lower.

However, Number 10 did indicate this week that they had not ruled out a new package of measures to help struggling Brits.

Watch: Chancellor insists he is 'always listening' over cost of living rises