Households in Britain underestimate their main annual bills – council tax, gas, water and electricity – by an average of £770 a year, according to new research.

Santander Current Accounts revealed the large gap between what people believe they need and reality, and suggested it is widening year on year.

That is because households underestimated their cost of bills by £467 a year ago, suggesting perceptions are changing as the figure for 2014 is 65% higher than 12 months ago.

Santander asked bill payers to estimate their annual spending on their main bills, with comparable data from 2013 then used to see how perceptions have changed in the past twelve months.

Underestimating the main bills

Respondents to the survey underestimated what they pay for council tax by £721 a year – believing they spent £747 on average rather than an actual cost of £1,468.

Similarly, they thought that they did not spend as much on gas as they actually do with such bills costing £742 on average compared to the £463 projected spend which consumers thought they paid.

Electricity and water bills were also underestimated by £91 and £65 respectively, showing that many people are unaware of just how much they spend.

The only factor to change between 2013 and 2014 was the amount spent on water bills, as a £146 overestimate in 2013 is now underestimated this year.

One service that people did overestimate their spending on this year was the cost of their TV, phone and broadband services. Households believe they spend £503 a year on these items but they actually spent just £117 – overestimating their bills by £386.

Why the gaps?

A key reason for the gap between actual and estimated spending could be because people do not pay attention to their bills and bank statements. More than one quarter (26%) of bill payers revealed they do not look at their statements thoroughly while 4% – equivalent to around one million homes – do not even open them.

According to the research, one in eight people had never supplied a meter reading or could not remember the last time they gave one for gas and electricity.

The average length of time since households compared suppliers for the best deals was also more than a year; meaning some households could be missing out on potential savings.

Understanding the cost of living is an essential part of managing finances and of ensuring that money is available to cover the essentials that are needed to live. With Christmas just a matter of weeks away, having more disposable income as a result of smaller bills will benefit families – showcasing why comparing suppliers and keeping on top of money matters is essential.