The Great British Finance Squeeze – how October will bring money misery for many

Laura Suter
29 September 2021
  • Furlough, VAT holiday, Universal Credit uplift and stamp duty holiday all end on 30 September
  • Energy price cap comes in on 1 October, pushing costs up by £140
  • Food costs are rising, with ongoing supply chain issues driving them higher

Laura Suter, head of personal finance at AJ Bell, comments:

“October is the crunch month for all of our finances, as everyone’s pay needs to stretch a bit further to cover soaring household costs at the same time as the Government cuts support for households who need it most.

“The end of September marks the end of the Government’s pandemic support, with the furlough scheme closing and the £20 a week Universal Credit uplift being removed, but we’ll also see the stamp duty holiday end and the energy price cap kick in. On top of that we’ve seen the biggest rise to food prices since 2008, and price rises elsewhere, meaning the nation will face the biggest squeeze on their finances in years.

Furlough – ends 30 September

“The furlough scheme ending is expected to lead to a rise in people being made redundant. The latest figures show that 1.6m people are still in furlough and even the bosses at the Bank of England are expecting a spike in unemployment as the scheme is wrapped up. Clearly being made redundant as prices are rising, benefits are being cut and after seeing a cut to wages from being on furlough isn’t great timing for anyone. The silver lining is that there are lots of job vacancies out there, so the hope is that people can find alternative work swiftly.

Energy price cap – comes in on 1 October

“The energy price cap is going to increase bills for the average customer by £140 from 1 October, but many will see rises far higher than this. Usually you’d be far better off getting off your provider’s standard variable tariff and locking in a fixed-rate deal, but the energy market is so barmy at the moment that no one is offering a fixed deal for a cheaper price than the energy cap.

“This means everyone needs to face up to rising energy bills, just as we head into the colder months. If your deal has ended you need to weigh up whether you want to secure a fixed-rate deal now, at a higher cost than your current price, with the expectation that you’ll be protected from rising energy prices. Or you can stick with the energy price cap rate and gamble that recent gas price rises end soon.

Rising food costs

“Anyone who has been to the supermarket recently will have noticed that their weekly bill has been rising. A combination of shipping issues, driver shortages, supply chain issues and a leap in demand have all lead to a spike in prices – in July we saw the largest monthly rise in food costs. While you can’t directly combat rising prices, you can reduce your food bill. There are lots of offers out there for using online grocery delivery services for the first time, which can get decent discounts on a shop. Or you can go back to the old-fashioned methods of sticking to your list, meal planning and budgeting.”

Universal Credit - £20 uplift ends 6 October

“It’s been the source of much debate and concern, but it appears the Government is pushing ahead with plans to cut Universal Credit by £20 a week and return it to pre-pandemic levels – that represents more than £1,000 in income a year for each person claiming it. Almost six million people are on Universal Credit and the cut to their income just as their household costs are rising means many will have a bleak winter.

“Due to the way Universal Credit is tapered as earnings increase, it’s not just a case of people picking up an extra couple of hours of work to help fill the gap, instead they will likely have to make tough decisions about what to pay for and what to cut from the household costs. Anyone who will be hit by the cut should check they’re getting all the benefits they’re entitled too – Citizens Advice is a good first port of call for help navigating the system.”

VAT reduction – ends 30 September

“The reduced VAT rate for hospitality businesses was introduced in the pandemic and has been extended, but it will now come to a close at the end of the month. The current 5% rate will rise to 12.5% until March next year, when it will return to the normal 20%.

“Many hotels and restaurants decided to keep this reduction for themselves rather than pass it on to customers, to help shore up their finances post-pandemic. With food and energy costs rising it has provided a cushion for businesses and may have helped them put off increasing prices. But once the rate shoots back up it will be another squeeze on margins for businesses and means we’ll probably see higher prices when going out to eat or booking a trip away.”

Stamp duty holiday – ends September 30th

“The biggest savings from the stamp duty holiday have already passed, but the tapered rate now comes to an end next month. The temporary increase to the tax-free amount reduced from £500,000 to £250,000 at the end of June, but from October 1 that will now return to the normal £125,000. It means that anyone completing on their property after the end of September will face a £2,500 additional tax cost.

“The tax break has been blamed for soaring house prices and many are worried about a drop off a cliff once the stamp duty holiday ends, which would inevitably mean falling prices. However, while there is likely to be a surge of property purchases pushed through before the deadline and a small drop in the month after, the early signs are that the property market isn’t headed for a large crash – particularly while borrowing is still so extraordinarily cheap.”

Laura Suter
Head of Personal Finance

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

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