Households can offset Budget woes by counting the pennies
Jeremy Hunt’s autumn statement never looked like it was going to be a barrel of laughs. From the moment he took office as chancellor a month ago, he has been at pains to let the world know that taxes are going up for everyone, and public spending was going to be cut. And so it was.
Along with all the taxes and cuts announced, the Treasury also published a depressing set of forecasts showing what the public finances will look like over the next few years. Perhaps the grimmest of these was the fact that, when taking inflation into account, average wages won’t return to where they were before the pandemic until the end of this decade.
That’s all the more bleak when you consider that wages had only just recovered from the levels they were before the financial crisis. That means the average household in the UK will be no better off by 2028 than they were in 2008 – a boast that no other major economy can make. But when faced with bleak announcements like these, it’s worth remembering that whatever is being talked about in terms of averages doesn’t have to be what happens to you.
First up, there were a few chinks of light in the autumn statement, which will be a boost for some. The chancellor announced that he intends to maintain the so-called “triple lock” – which commits the government to increase pensions by either 2.5 per cent inflation or wage growth – whichever is highest. This means that from next April, the state pension will rise by over 10 per cent, while other state benefits will also increase by the same amount.
In terms of energy prices, the chancellor confirmed the current annual price cap of £2,500 will stay until April, after which it will rise – but only to £3,000. And for those on the lowest incomes, there is additional support available here too. The minimum wage will also increase by almost 10 per cent to £10.42 an hour – good news for those in work on the lowest incomes. For first time buyers, the cuts to stamp duty – which were expected to be scrapped – have been maintained until 2025.
Of course, as promised, the Budget didn’t give much to most people – and ensured that over time, the majority of households will pay more tax. For those on the highest incomes, the top rate of tax will now apply above £125,140 a year instead of £150,000; while the thresholds at which the other tax rates
apply will be frozen until 2028 – meaning more people will end up on higher tax rates quicker than they otherwise would have.
Making the right decisions with your mortgage, your energy bills, your insurance, your broadband and mobile phone bills can make an enormous difference
Small business owners that get paid in dividends will also be dealt another blow – with the dividend tax relief being cut from £2,000 to just £500 over the next couple of years. And the threshold at which you have to start paying capital gains tax will be halved next year from £12,300 to just £6,000. In aggregate, the forecasters suggest that all this will amount to a fall of about 7 per cent in most households’ disposable income. But as I said, this doesn’t necessarily have to be the story for you – and even if it is, it doesn’t have to mean a 7 per cent drop in life happiness.
Most households waste quite a lot of money – and there’s no better time to work out exactly where every penny is going each month (and to make sure those long term bills are as low as they can be). Making the right decisions with your mortgage, your energy bills, your insurance, your broadband and mobile phone bills can make an enormous difference to your monthly outgoings.
If you’re about to see your mortgage rate leap as you reach the end of a fixed term, think about remortgaging on to a deal over a longer term. I’m 45 and still have 34 years to run on my mortgage – by which time it is presumably 50/50 as to whether I’ll still be alive.
Obviously, I hope my financial circumstances improve and that I can afford to pay it off faster. But for now, the additional longterm cost is well worth it for the flexibility of the lower annual payments that I have to make. Looking at every pound of other
spending you do each month is also a good exercise. You may find there are subscriptions you forgot about – or realise just how much you can save each month by making your own lunches or cycling to work.
And if you’ve been in your job a while, it’s not a bad time to see whether you can get a pay rise by moving elsewhere. One of the oddities of our current economic situation is that although we are in recession, unemployment is at historic lows due to a shortage of labour.
That means that many employers are willing to pay more than they might have to take on new talent. A friend of mine who runs a small business recently told me how one of his 25-yearold employees, who had been with him for 15 months, managed to get another job paying over a third more.
Can’t afford your holiday next summer, why not look at putting your home on Airbnb while you’re away? Or if you have space (and enough patience) get a lodger. I know there will be many that don’t have these choices – and who will have an incredibly tough few years. For them, the hope is that the government does more – or even that we see a change in government in two years, with a different agenda.
But for those who are not in dire straits – there’s lots that can be done to make what you have go further, and to try and earn a little more. Hang in there.
James Daley is the manaǀng director of the consumer group Fairer Finance
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