One benefit of a degree of financial independence is how each crisis becomes less and less of a direct attack on you.
It allows you to accept it, move on or spectate. So the panic over bills has been giving me a lot of food for thought…
Human psychology is funny. We panic over our heating bills but ignore the precipitous drop in the value of the pound or neglect to balance our monthly direct debit with our houses jumping by 13% in the last year (for me anyway).
Our minds eye is attracted to what’s small and moving fast and ignores the big things that move at a glacial pace.
If you think of our gas/electricity bill as an annual management charge for our properties – it’s probably lower than it was 10 or 20 or 30 years ago. £5,000 a year on a £500,000 house = 1% vs. £2,000 a year 30 years ago on a £100,000 house = 2%.
We seem to focus more on the numerator and less on the denominator.
Energy is cheap and we use it like it’s free. That needed to change and we had the chance to have the carrot – now we need the stick! The solution isn’t shopping around for a better deal, it’s using less and investing to use less – plain and simple.
For disclosure, I realised that I should invest in green energy production many years ago. I did and so could you. I couldn’t put solar panels on my rented roof, nor vastly improve energy efficiency – but there’s ways around that if you are not totally dependent on a financial system that enslaves you. I’ll pay more for my bills but make more back in dividends from green energy my money helped build. And I’m not alone.
It seems to me that the default setting for everyone in the UK is to spend all money earned. Every penny gone and if you can’t afford it, get into debt.
And that’s just the day to day stuff. In the longer run, pensions aren’t paid into, mortgages aren’t paid-off, ISAs aren’t built up and it’s all someone else’s fault.
Liz Truss’ new government will probably go ahead cap bills for gas and electricity – giving a handout to scrounging big energy users and saddle the government with the bill.
Truss is the new leader and her campaign was remarkably free of saying what she’ll do. We have a situation where the party in power for 12 years have no idea of what they plan to do in the future. How did she get elected then?
I think that Tory voters would be happy with the b*stard love child of Eva Braun and Adolf Hitler as their leader so long as she had a plan to cut bills, cut taxes, raise pensions and a firm but fair approach to domestic reform & migration.
On Truss’s plans The IFS say it’s very poorly targeted as it will benefit affluent people more. There are other proposals too – and it’s not like this is a new problem, we’ve known it for ages!
What the IFS might not be saying is that it’s superbly targeted to Tory voters who have the most ability to pay but hiss the most when plucked.
That’s the UK government solution to a crisis affecting us all. The cost of this is around £100 billion – imagine what we could have done with that money between 2014 and now if the Cameron government hadn’t of effectively stopped the quickest to build and cheapest power source (and it’s not like we haven’t been here before).
Meanwhile in Scotland
The Scottish Government haa proposed legislation to freeze rents. Unfortunately, it’s just the social sector but it’s a start if you want to give poorer people more help.
The Scottish government don’t have as much fiscal freedom as they’d like (and thank god, some might say) to help with the fuel / cost of living crisis but don’t forget that if the average rent in the UK is over £1,100 a month and the average monthly mortgage payment is just £750 (most of which is capital and less interest) that difference is £350 a month or more than the threatened annual gas/electricity bill starting in October.
Think about that for a moment:
- Renters pay substantially more for the pleasure of not owning their own home
- You know intuitively that mortgaged homes are bigger and better than rentals
- Owners not only pay off their mortgage but pocket the capital gains on house price inflation
- Landlords have little incentive to improve energy efficiency and so don’t. More landlords to be forced to improve energy efficiency.
So, a poorly insulated cramped rental flat might have the same energy consumption as a well-insulated spacious owner occupied house. The rental costs money and leaks money while the owned property is a money making machine.
I can’t think of many renters that I know who have properties too big for them and I can’t think of many homeowners who have properties too small for them – particularly if they are older.
(And if you really can’t afford £350 a month in gas/electricity for your superfluous space – there’s tens of thousands of Ukrainians who need help and you’ll be rewarded with some money for your troubles).
Energy bills are a fraction of rents – and nobody cared for years that they rose and rose. Financing costs for mortgages (interest rates) dropping to zero didn’t put a dent in rents. So how is it that our heating bills going up to the point where renting is still more expensive and worse than owning that middle class homeowners are up in arms? Cognitive dissonance is one option.
And when houses cost anywhere between 3.5 and 10 times your salary; a modest 10% annual rise is a personal inflation rate of between 35% and 100% of your (pre-tax) salary.
Back to the Point
This cost of living crisis is just another crisis that poor people have had to live through over years of austerity. It seems that it’s only once you have to consider the aga-nomic feelings of the pampered middle-classes who own more, consume more and complain more that it becomes a national problem. And these older daily wail moaning types are always going on about how life was better in the rose-tinted old days. Before central heating, multiculturalism and double glazing; with frost on the inside of windows and everyone was poor but happy.
I’m not suggesting I have solutions for everyone – nor that everyone can be saved but you should really try to get yourself into a position of financial independence – and independence in the meaning that you have money tucked away (working for you) for a rainy day – or rainy season. Independence in that you can make proactive choices (which are cheaper) rather than reactive panicky knee-jerk lurches.
My own view is that there is a generational divide in the UK. Across any metric worth measuring, the young (and I consider myself young-ish) are hard done-by and I don’t expect the new government improve things. You can only really save yourself – most of us are not influencers, so sweep your own porch first.
“It seems to me that the default setting for everyone in the UK is to spend all money earned. Every penny gone and if you can’t afford it, get into debt.”
You’re not wrong. Every public holiday has been morphed into a celebratory “spend all your money on this public holiday weekend”. Every pay day has morphed into a “treat yourself this pay day because you deserve it”.
In the days and weeks around the announced cost of living crisis and significant energy bill increases all the pubs and shopping centres in my area were curiously rammed.
Being a prudent household (or bunch of misers) we can handle these financial issues without the bail outs that many others are demanding.
These days it feels that everyone is a victim, everyone needs a bailout and everyone else should pay. Of course the rich should pay more. Who are the rich, anyone with more than me.
Urgh it’s not fair – why have I got to stop spending all my money on stuff I want rather than stuff I need … like heating and food.
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Who are the rich though?
Those who earn more, spend more or own more?
The UK has become a bit soft – where’s the blitz spirit? Stuff upper lip?
A divide that rarely gets a mention is council house tenants (and to a lesser extent housing association tenants) v private renters.
My brothers council house rent is ~£400 pcm for a 3 bed semi in the North – same house private is around £900. That’s really is an unfair advantage getting close to £10k gross pay.
Council houses are great – life time tenancies less so, 50% rent discounts for wealthy tenants is just bonkers – cf rail union bosses earning £100k+ have council properties.
We should tax the benefit in kind or make rents proportional to household income.
Ps house prices to earning isn’t a good measure, how much is costs over the lifetime is much better and this is sensitive to interest rates (and inflation is we want to be real)
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Totally agree Boltt
Currently, it’s illegal for a landlord to rent out a property with an EPC (Energy Performance Certificate) rating of below E. From 2025, all rented properties will need a certification of C or above. As you state, some landlords won’t/can’t be arsed to pay for the improvements to get their properties insulated properly, so will likely sell up, resulting in fewer homes to rent, which will in turn push up rents due to supply and demand.
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Hi Weenie, I don’t believe the supply and demand argument here.
The property won’t disappear, they’ll likely try to sell (pushing down prices) or make the improvements necessary.