WORKING-AGE households are set to be an average of £400 worse off in the year ahead amid income squeezes and bill hikes, the Resolution Foundation has warned.

A new report by the think tank estimates that the disposable income of a typical household will fall by 1 per cent, while those across the poorest half of Britain are set for a sharper 2 per cent fall, losing the equivalent of £300. 

One contributing factor is council tax rises, with households facing an £80-per-year average increase as rates rise by 5 per cent across most of England, 7 per cent in Wales and 9 per cent in Scotland.

Above-inflation increases in water charges will hit even harder, pushing bills up by an extra £120 on average.

Ofgem’s 6.4 per cent increase in the energy price cap adds another £111 a year on average from this month, although the Resolution Foundation believes that the impact of the change will be limited, with prices expected to fall in July. 

Working-age benefits will not keep pace with inflation this year, the think tank warned, with April’s 1.7 per cent boost falling short of the 3.2 per cent consumer prices index rate projected for this year.

Meanwhile, private rents have risen by 9 per cent since the local housing allowance was last set. 

In the run-up to start of a new financial year, the foundation warned that long-running freezes to personal tax thresholds will push up effective tax rates.

The think tank added that the increased rate of employer National Insurance contributions, together with reduced thresholds, would feed through to workers through slower wage growth as employers look to recoup costs. 

It estimated that both of these changes will reduce household incomes by an average of £170 a year.

Resolution Foundation principal economist Adam Corlett said: “The new tax year has arrived and brings with it higher taxes, even larger bill increases and benefits that aren’t keeping pace with the rising cost of living.”

Mr Corlett, who authored the report, suggested that the 2026 above-inflation increase to the standard allowance of universal credit be brought forward to this October to ease the pressure on vulnerable households.