One particularly damp Saturday morning last November, I planted a number of hawthorn and beech saplings in the front garden with the intention of creating a hedge of around 30 feet in length. It was back-breaking but satisfying work (as much gardening is). A few days later, a delivery driver parked his van and walked straight through the still fragile saplings and across the front lawn to our front door.
“Didn’t you see the saplings?” I asked when opening the door.
The driver turned and looked back. “Oh, sorry mate. No, I didn’t.” He handed me the package and left – though not through the saplings.
I realised we needed a dozen wooden fence posts and some wire or rope to prevent delivery drivers taking a short cut through our budding hedge. I ordered the necessary equipment – a dozen 1.2 metre wooden fence posts – the same day. Would you believe they took almost eight weeks to arrive?
A global timber shortage, the direct consequence of lockdown-induced DIY projects, has sent the price of lumber through the roof. The situation has not been helped by a surge in larger scale post-lockdown construction projects. Meanwhile, shipping costs have soared after shipping firms reduced capacity by 11% during the pandemic in anticipation of reduced demand. Remarkably, the average cost of shipping a container increased by more than 300% between October 2020 and October 2021, having a significant impact on the price and supply of commodities such as timber.
Elsewhere, energy costs have soared as the wholesale price of gas has risen. Causes include a massive increase in demand from Asia and seriously depleted gas storage supplies across mainland Europe. Russia’s murderous invasion of Ukraine has exacerbated matters – although when compared with what Ukrainians are having to put up with, it puts our problems into context.
Yet we cannot ignore the price of gas, which rose eight-fold in the 12 months to February 2022. Gas is a significant energy source for UK households. Around eight in every 10 homes in England are heated by mains gas, while one-third of our electricity is generated in gas power stations.
Unfolding events in Ukraine appear to have finally convinced our political leaders of the importance of UK energy security. We have decades of gas and oil supplies in the North Sea which should be put to immediate use, not simply abandoned as we career towards (an uncertain) future comprised solely of green energy.
Meanwhile, inflation has taken root and there’s little sign of it abating any time soon. It’s no consolation that average inflation rates across the eurozone are now 7.5% because the UK rate hovers at around 6.2%.
According to the latest Bank of England estimates, UK inflation will peak at 7.25% this year, a forecast driven largely by average increases of £693 in fuel costs after the energy price cap was raised on April 1. The likely result is a prolonged period of inflation which the Bank does not expect to fall (to 2%) until mid-2024.
No one can avoid higher prices, although the worst affected will be those households on fixed or lower incomes who spend a disproportionately higher proportion of their incomes on energy costs.
And then there’s tax. All of that ‘free money’ distributed by the Chancellor during lockdown has to be repaid, which explains why the recently announced tax increases were larger (as a share of national income) than any year since 1993. The 1.25% increase in National Insurance Contributions (an income tax by any other name) came into force last Wednesday. We should expect more of the same in addition to the planned health and social care levy expected next year.
On Wednesday, income tax personal allowances were frozen and will remain so until 2026. Ordinarily, these allowances would rise in line with inflation. Freezing them is tantamount to an increase in income tax as millions of people are expected to pay higher rates of tax as their incomes increase more rapidly than their personal allowances.
Given the prevailing economic circumstances, it’s inevitable that people will want to save every penny whenever and wherever they can. Fortunately, this can still be done. I’ll have more details soon.
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.
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