Rip-off Britain? Seven tips to ease the cost-of-living crisis

More than half of consumers feel they are getting a raw deal on energy, according to the results of a new interactive investor poll.

• When it comes to financial products and services, only a small percentage of consumers believe they are getting a raw deal – but many might not know that they are.

More than half (52%) of UK consumers believe the cost of energy is the biggest rip-off compared to other areas of common household expenditure, according to a new poll by interactive investor, the UK’s second-largest DIY investment platform.

The survey of 2,000 UK adults conducted by Opinium for interactive investor in late January*, also found that 42% of respondents feel they pay over the odds for fuel or transport, while one in four said the same about their spend on groceries.

In addition, almost a quarter (24%) of the sample believe they overpay for household utilities such as telephone bills, and 14% on cars.

13% of those polled said the cost of housing and eating out were a rip-off, respectively.

When it comes to financial products and services, a small percentage of respondents believe they are getting a raw deal on their pension (6%), and ISA (4%).

Myron Jobson, Senior Personal Financial Analyst, interactive investor, says: “Britons feel like they are being ripped off in almost every area of expenditure, with energy bills being the biggest pain point among survey respondents. With energy bills set to rise drastically in the UK, from energy through to food, things are set to go from bad to worse for consumers.

“It is shocking how much activities such as heating up your property, filling up the tank and buying groceries can set people back and only 10% don’t feel ripped off, accepting inflation as a reason for rising prices. The escalating cost of living means consumers face the harsh reality of having to dig deeper to maintain their current levels of expenditure.

“It is interesting that a small percentage of the sample felt that they weren’t being ripped off on the amount they pay for financial products such as their pension and ISA. The truth is many people simply don’t know that they might be paying over the odds for financial products.

“Many people have got into the habit of shopping around for the best broadband, energy and other household bills, but it pays to do the same with your ISA, pension and other financial products. It could save you thousands over the long term. At interactive investor, our flat monthly fees mean our customers know exactly how much they are paying for us to administer their ISA, pension and trading account.

“It is important to remember that what might appear a good deal for one person might not be for you. It is important to assess your own financial circumstances before making your choice.

“Millions will be worse off in this year resulting from rising prices - with poor households hardest-hit. A lot is changing all at once, and it can be difficult to gauge how and when your finances might be hit, so it remains important to pay extra attention to your financial well-being and consider what protective steps you can take now to avoid money worries later.”

Myron Jobson outlines steps to mitigate the worst of the impact from the rising cost in living.

1. Beat the National Insurance rise

National Insurance is set to increase from April, putting further strain on incomes with workers set to pay 1.25p more in the pound from their wages. The increase will hit the take-home pay of millions in the UK, resulting in an employee on £20,000 a year paying an extra £130, while someone on £50,000 will pay £505 more.

The change has increased the allure of employment salary sacrifice schemes, as they can be used to offset the forthcoming rise. This arrangement allows employers to reduce employees’ salary and pay the equivalent amount into a non-cash benefit such as pension contributions and a cycle to work scheme. These benefits reduce the NI payable by the employee as well as the employer.

However, a lower salary can affect entitlements such as maternity/paternity pay, mortgage applications based on one’s income, and some state allowances. As such, people should always consider how such benefits could impact their finances more broadly.

2. Review your spending

Evaluate your expenditure and look for ways to reduce spending. For many households, hikes in the cost of food and fuel are most noticeable when prices increase. It’s important to note that inflation hasn’t hit all types of food evenly. Prices of favourite snacks such as crisps and soft drinks are among the biggest risers in recent history.

Even simple things such as opting to purchase a store brand equivalent of traditional larder products can help to cut down the cost of groceries. If you’re anything like me and find it impossible to distinguish between store brand and premium brand rice, opting for the cheaper version can help save on cost, without compromising on flavour.

3. Work out your inflation number

If you don’t use a budget to manage your spending, it’s difficult to know where you stand. Everyone has their own inflation number – it’s worth keeping a spreadsheet of your own spending habits so you can get a better idea of the goods and services that are eating most into your budget, and where you could cut back. If you don’t have a budget, now is a good time to start one. Inflation is hitting everyone, but low-income households living on a tight budget with little room to spare are feeling the pinch even more.

4. Get support if needed

Those struggling with debt do not have to suffer in silence – there is support out there. They should act swiftly and contact their creditors for more support. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all of your options.

5. Review your savings

Some of those who became accidental savers during pandemic, by keeping jobs while facing fewer outgoings during the Covid lockdown, may need to use some of the cash to tide them over during the cost-of-living crisis. Those considering locking their cash into a fixed-rate fixed-term deal for a better rate of interest should consider whether they’d need to access some of that cash if the cost of living continues to grow.

While the high rate of inflation means that most people’s savings are effectively losing value, it still pays to shop around for the best deal.

6. Fix your mortgage

Mortgages become more expensive when the base rate rises. The 850,000 UK mortgage holders on a variable rate deal will feel the immediate effect of higher interest rates as their rate is linked to the Bank of England’s base rate. For those on a fixed-rate mortgage deal, new interest rates don’t apply until the end of their fixed period.

Mortgage rates are still low compared to yesteryear, and there are still many competitive deals in market. Anyone looking to buy or remortgage in the near future should consider securing a deal now. Mortgage deals are often valid for a number of months, and it is not too early to start looking for the best deals now.

For some homeowners, funnelling some of their savings to overpay on their mortgage is a no brainer and a great way of saving a substantial amount in interest. There are limits on how much you can overpay and there might also be charges, so you should check with your mortgage provider first.

7. Avoid the temptation of Buy Now Pay Later (BNPL) schemes

The increase in the cost-of-living risks even more people turning to BNPL schemes to help tide them over. You can now buy essential groceries through some BNPL services.

Worryingly, many people are still unaware that BNPL schemes are a form of credit. Recent research by Which? found most users admitted to skim reading the T&Cs or simply ticked a box to say they had read them. Customers can be referred to debt collectors and their credit scores could be tarnished if they miss payments.

While it might be tempting to delay payment – and BNPL adverts can be very enticing and sometimes misleading - it can be a slippery slope into debt.”

It is also worth mentioning that relying on your credit card to get by may store up trouble for the future.

Survey responses

Notes to editors

*The poll of 2,000 UK adults was conducted by Opinium for interactive investor between 24 and 25 January 2022.