Martin Lewis: 'The cost of living crisis came to a head today' – watch the video explaining what happened and what it means for you
In a new video, MoneySavingExpert.com founder Martin Lewis analyses the extortionate new energy price cap and the introduction of a new financial support package offering an energy rebate and council tax discounts to try to ease the problems caused by a spike in the cost of living. Martin also explains what the latest increase to base rates means for households. Watch the video below.
Martin Lewis: 'This "winter" could last for years'
You can turn on subtitles by selecting the closed captions icon at the bottom right of the video.
Martin Lewis, founder of MoneySavingExpert.com, said: "The cost of living crisis came to a head today, with UK interest rates doubling and a rise of 54% in energy bills from 1 April for 22 million homes that was previously unthinkable and is now catastrophic.
"The Government had no choice but to put energy-hike mitigation measures in place, as at that rate, huge swathes of people will – without exaggeration – face a choice between starving and freezing. What they've done will certainly forestall that for many, but I doubt all.
"The first measure – a £200 rebate on bills in October – is on the surface more generous; nearly double the cash that a cut in VAT proposed by others would have been. Plus, as it's a flat rate it is weighted to benefit lower energy users more. After all, £200 goes a long way to covering a 50% increase on a £600 a year home, but is negligible for a home with bills of £3,000 a year.
"Yet the issue is that it is a loan and it needs repaying at £40 a year – in effect the Chancellor has created the equivalent of a giant UK-wide energy direct debit, trying to spread the hit of a high-cost period and repay once things return to normal. The problem is there's no guarantee they will return to normal. This 'winter' could last for years, and if that happens, an extra £40 on future bills will be a very high price to pay.
"The £150 money towards council tax bills for those in bands A to D in England, which affects nearly 20 million households (with similar funds for the rest of the UK), is a welcome boost – and a clever mechanism to target lower and middle-income households, rather than individuals. Yet it is far from a perfect solution, and will leave some getting help when they've high incomes and others with low incomes missing out.
"I spoke to the Chancellor the other day and urged him to ensure that whatever solution he came up with, there was a discretionary fund to cover the edge cases who'll miss out. So I'm particularly pleased to hear that he listened to that and there will be £144 million put aside for local councils to give to those people who won't get the £150.
"On top of all that, we are also going to see a 0.25 percentage-point increase in the Bank of England base rate – which won't hit people as directly as the energy rates, but will add fuel to the financial fire for some – especially those on variable-rate mortgages and particularly for those who are trapped on those rates and unable to switch. It will see variable-rate mortgage-holders likely pay around a typical £12/month rise per £100,000 borrowed.
"Hopefully, savers will see a small improvement in the best easy-access rates soon, but it certainly won't take the edge off the disastrous situation for heating your home."