Pensioners and families alike need to protect themselves from the cost of living crisis. (Image: Getty)
We live in deeply uncertain times and, after last week’s dramatic election results, the uncertainty looks set to intensify. Families already face the threat of higher taxes, stubborn inflation, soaring household bills and weak economic growth. On top of that, the conflict in Iran threatens to send petrol and energy prices even higher, with potential shortages another risk.
No wonder confidence has collapsed. Economic optimism has fallen to its lowest level since Ipsos started collecting the data almost 50 years ago. Daniel Casali, chief investment strategist at wealth manager Evelyn Partners, said six major threats now hang over Britain. We suggest some simple steps to protect your finances.
Inflation
Inflation climbed to 3.3% in March, and the Bank of England warned it could hit 6.2% unless Middle East tensions ease. “There may be trouble ahead,” Casali said.
That’s alarming, especially for pensioners who have already endured years of rising bills and shrinking spending power.
But there are practical steps households can take now to strengthen their finances and prepare for tougher times ahead.
• Move cash sitting in low-paying accounts into a competitive savings deal.
• Consider fixing energy bills if you spot a competitive tariff.
• Negotiate lower broadband, TV and mobile phone bills, or switch.
Property
House prices have held firm so far, but could slide as interest rates increase, buyers are squeezed and confidence slips. “Wages are struggling to keep pace with rising prices, adding to the squeeze on consumers,” Casali said.
At the same time, rents are rising. Older homeowners have some protection if they own outright, but anyone planning to downsize may think carefully before rushing into a sale in a weak market. Equally, families may want to avoid taking on major new debt unless absolutely necessary.
- Build an emergency savings pot covering at least three months of spending
- Delay non-essential big-ticket spending if possible.
- Pay down costly borrowing, such as credit cards or personal loans, starting with the most expensive.
Taxation
Britain’s tax burden is already the highest since World War 2, and forecast to climb higher still.
“Higher taxes can help stabilise Government finances in the short run, but often come at the cost of lower economic growth,” Casali said.
That matters because sluggish growth can hit pensions, investments, wages and jobs, as we’re seeing today.
Tax allowances have been squeezed for several years now, but that makes it even more important to use those still available to you.
Many lose hundreds of pounds every year simply because they fail to use their annual ISA, capital gains tax, dividend and inheritance tax gifting allowances, or neglect to claim valuable pension tax relief or the marriage allowance.
• Use your ISA allowance to shield savings and investments from tax.
• Premium Bond winnings are tax-free, but prizes aren’t guaranteed, so this option won’t suit everybody.
• Married couples and civil partners should check that savings are held in the most tax-efficient name.
Energy
Casali said Britain is vulnerable to global energy shocks as prices rise while domestic oil and gas production plunges.
This is a particular worry for pensioners, who typically spend a bigger share of their income on heating and essentials. Now is the moment to improve energy efficiency before next winter arrives.
- Apply for any pensioner discounts or support schemes you may qualify for.
- Draught-proof doors and windows to cut heating costs.
- Check if you have too much credit with your energy supplier. Either request a smart meter or submit regular readings to ensure accurate bills.
Productivity
Growing productivity is vital to drive prosperity and wage growth, and keep the public finances sustainable.
Unfortunately, UK productivity is chronically weak, Casali said. “Since 2011, growth has averaged just 0.4%, the weakest for more than a century.”
The inefficient public sector, underinvestment and growing long-term sickness are to blame. Savers need to make sure their money is working hard, especially as inflation erodes its real value. As ever, diversification is key, as well as using your ISA allowances.
• Avoid holding all your investments in one sector or country.
• Review whether your pension still matches your retirement goals.
• Seek regulated financial advice before making major investment changes.
Politics
Rising political uncertainty could hit your finances too. Historically, the average British prime minister spent four years at No 10. That’s slipped to just 18 months in the last decade, and now Sir Keir Starmer faces a leadership battle too.
This could trigger a possible “lurch to the left” as candidates compete to win over Labour MPs and activists, Casali said. “It could lead to higher welfare spending and public sector wage rises, adding to inflation and straining public finances.”
At the same time, the two-party system is threatened by Nigel Farage‘s Reform UK and Zack Polanski’s Green Party. “No party is likely to secure a clear majority at the next election, raising the prospect of coalition negotiations and weaker policy.”
With the country facing potential disarray, keeping your personal finances in order is more important than ever.
- Cut unnecessary bills. Even small savings can add up to hundreds of pounds over a year.
- Keep a financial cushion in case inflation or borrowing costs spike.
- Make sure pensions and ISAs are properly diversified rather than purely exposed to the UK.