Cost-of-living round up – the key takeaways and what to expect next week

Key stats of the week:

• Food inflation hit 12.4%, up from 11.6% in October.
• An additional £1bn to help British households insulate their properties has been announced by the government.
• Eligible households to receive grants of up to £1,500 for household insulation.
• Department for Workplace and Pensions (DWP) has so far handed back more than £209m to people affected by State Pension underpayments. Overall liability could stretch to almost £1.5bn.
• Around 1,100 people could be eligible for compensation through the British Steel Pension Scheme redress scheme.

The cost-of-living headlines this week

Shopper habits

Susannah Streeter, Senior Investment and Markets Analyst

Shoppers are still showing sturdy signs of resilience in the run up to Christmas with numbers pinging in from Cyber Monday beating expectations.

In the US, an estimate from Adobe Analytics put the total spend at a record $11.6 bn. While in the UK, Barclaycard’s figures show the number of transactions rose 5% on the day compared to last year. However, it’s likely total spend has risen due to the inflationary effect, with shelf prices higher than last year.

It’s also clear that shoppers have been waiting to pounce on bargains, putting off spending from earlier in the month, and bringing forward purchases from December. During the run up to Black Friday, spending across the retail sector was sharply down compared to October. After this big urge to shop, it’s likely there will be more of a purge of these spending habits, particularly as January bill shocks start to loom.

Impact on households

Sarah Coles, Senior Personal Finance Analyst

This week, the government announced an insulation scheme for those in the least energy efficient homes in the lowest council tax bands. It could save them around £330 a year, and will reach people who don’t qualify for existing schemes. But given it won’t start until spring, there’s a long, cold winter to get through first.

We also had an update on mortgage borrowing from the Bank of England, which revealed the number of mortgages approved in October was down around 10% in a month and 20% over two. It demonstrates the impact of the massive hike in mortgage rates on over-stretched buyers. It raises the likelihood that it will depress demand so significantly that we see prices fall in the coming months.

State Pension underpayments

Helen Morrissey, Senior Pensions and Retirement Analyst

The DWP has so far handed back more than £209m to people affected by State Pension underpayments. This is progress, but a drop in the ocean when compared to the almost £1.5bn estimated to have been underpaid overall.

In some cases, these underpayments have stretched back decades. Even though the DWP has pledged to hire more people to speed up the process, it’s clear many could be waiting for some time still before they’re reunited with their money.

Women retiring under the old basic State Pension system are primarily affected. They’ll have had an expectation their State Pension would be paid correctly and due to an overly complex system, this hasn’t happened with many women enduring financial distress as a result. It’s a situation that needs to be resolved as quickly as possible.

List of the week – tips for avoiding inheritance tax pitfalls

The freezing of the inheritance tax thresholds means more people might consider cunning wheezes to cut their tax bill, but there are pitfalls to watch in each.

1. The wheeze – giving gifts during your lifetime using gifting allowances.
   The pitfall – make sure you’re not giving away money you’ll need later in life.
2. The wheeze – giving bigger gifts that fall out of your estate if you live another seven years.
   The pitfall – you might need this money later, and if you die within seven years, tax might be due on some of it.
3. The wheeze – giving your home away before you die – while you still live in it.
   The pitfall – if you continue to benefit from it in any way, it won’t be counted as having been given away at all.
4. The wheeze – using an IHT-avoiding trust-based scheme to leave your home without tax.
   The pitfall – if the taxman thinks you did it for tax purposes, it could void the scheme.
5. The wheeze – releasing equity from your home and giving it away.
   The pitfall – if you live less than seven years, you might not save. And if you live much longer, the scheme could cost more than the saved tax.
6. The wheeze – investing in qualifying investments on the Alternative Investment Market, which are IHT-free.
   The pitfall – these are high-risk investments, so should only be considered by people with large, diverse portfolios who understand the additional risks that come with investment in this area.

Explainer of the week – financial abuse

Our research shows that more than one in ten people have been a victim of financial abuse. Women’s Aid found that two thirds of abusers were using rising prices as a tool to control their partner, and three quarters of victims either couldn’t leave because of rising costs – or they found it much more difficult.

So, with the risks rising, we need to recognise abuse.

It was defined in the Care Act of 2014, as having your money or property stolen or misused, being defrauded, or being put under pressure when it comes to money or property. It’s a pretty broad definition which includes:

• Stopping you from studying or working.
• Forcing you to work longer hours or more jobs while they refuse to work.
• Demanding that all assets are held in their name.
• Making sure all bills and debts are in your name.
• Insisting you hand over your salary.
• Taking control of your bank account.
• Forcing you to ask for money for household expenses.
• Insisting on seeing receipts for every expense.
• Paying a household allowance that forces you into hardship.
• Stealing money from you.
• Destroying your belongings.
• Controlling your use of your property – like a mobile phone or car.

What to expect next week

On mental well-being

Sarah Coles, Senior Personal Finance Analyst

Next week, the ONS will publish two reports reflecting the impact that horrible price hikes are having on our mental health – both on our well-being, and on levels of depression. They’re horribly interlinked, because mental health problems can make it more difficult to face money issues, and money problems can exacerbate mental health issues. So we can expect problems to have worsened significantly as times got tougher.

We also expect to get the CMA report into what’s driving higher fuel prices, whether it’s fair, and whether more information would help us get a better deal.

British Steel Pension Scheme redress

Helen Morrissey, Senior Pensions and Retirement Analyst

There will be a watch on any developments regarding compensating members of the British Steel Pension Scheme. Members were misadvised to transfer out of the scheme by financial advisers and have suffered financial detriment as a result.

It’s estimated around 1,100 people could qualify for compensation, with the FCA warning advisers to make sure they have the assets available to pay any compensation due. A consultation is currently ongoing on these asset retention requirements, which will close in the coming weeks.

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