Money Talks

We’re all getting poorer this week – and thanks to Rishi Sunak, this is just the beginning

Ahundred years since TS Eliot published The Waste Land, its opening words “April is the cruellest month” are coming true. A combination of stealth taxes and rising prices means that from this month we will all be poorer. Gas and electricity bills of course lead the pack, with a 54pc rise for a “typical” household.

Clearly, millions of us are not typical, and day after day I hear of projections from energy suppliers that show fuel bills doubling or more. The fact is that popping bread in your electric toaster or boiling the kettle for tea will be over a third more expensive and your shower or bath (if gas powered) will almost double in price – an 81pc rise. Shorter showers, shallower baths, and less brown toast will save money.

But that won’t help with the “standing charge” – the cost of being connected to the electricity grid. That will nearly double – on average up 82pc before a single electron has even entered your home. In some regions it will more than double as costs entirely unrelated to energy are piled on – such as picking up the slack and expense of 30 suppliers going bust because of a broken energy market.

The contribution of the mobile phone companies is to whack up prices well above even the current rate of inflation. Virgin and O2 (now the same company) are raising them for many customers by 11.7pc from April – taking the 7.8pc retail prices index figure for January and adding another 3.9 percentage points to “continue innovating and improving services”.

BT/ EE and Vodafone are raising them by 9.3pc, using December’s 5.4pc but also adding the same 3.9 points – Vodafone to “maintain investment” and BT to “invest in our networks”. I have referred this strange coincidence to the Competition and Markets Authority.

Last week we learned that inflation – the general rise in prices – was continuing to shoot up and will keep doing so. The Office for Budget Responsibility, which advises the Chancellor, has predicted average inflation of 7.4pc for this year, peaking at 8.7pc in the final three months of 2022.

In other words, by the winter a £10 note will be worth just over £ 9. The Bank of England’s prediction is even bleaker – 8pc by spring and “higher later this year”. Its solution? Put up interest rates to make mortgages and borrowing cost us more.

The Chancellor is joining in by making tax more expensive. The extra 1.25 percentage points on National Insurance contributions from April 6 will raise the tax on wages for people under 66 ( pensioners are exempt from NI). This will eventually be partly offset by the increase in the threshold at which workers start paying NI. But that does not happen until July 6, so for three months the tax will be higher for almost everyone.

Taking the next tax year as a whole, those earning above £34,372 will pay more in National Insurance contributions than they did last year. People with income from dividends will pay an extra £3bn as the tax rates on those will also rise by 1.25 percentage points.

But despite how bleak the next month will be for our bank balances, the situation will only get worse. The energy price cap will not fall back to its near-£1,200 figure any time soon, mobile phone bills will not go down and a perverse stealth tax will only keep eating away at our take-home pay.

The biggest cost on taxpayers is the Chancellor’s decision a year ago to freeze tax allowances – the amount of income we can earn before tax is due – for four years.

This coming tax year alone will cost a basic rate taxpayer £78 and those who pay higher rate tax £ 396, compared with the tax they would have paid if allowances had risen, as the law says they should, with inflation.

Over the following three years that loss will grow as they stay frozen instead of rising each year. Using official inflation forecasts my calculations show that the personal tax allowance should rise from last year’s £12,570 to £14,700 in 2025/26. Over those four years the total cost of the freeze to a basic rate taxpayer is £1,108 in extra tax at 20pc and then 19pc from April 2024.

By April 2025 the higher rate threshold should be £59,000 instead of the frozen £ 50,270. Over the four years, higher-rate taxpayers will pay almost £6,000 in extra tax. The latest Treasury estimate is that this freeze will cost all of us £33bn more tax over those four frozen years.

Prices up every month. Taxes up every year. There will be more cruel Aprils after this one and the Chancellor, not war or energy markets, is to blame.