Horrendous price rises are set to hit hard this year. The Spring Statement laid out plans to mitigate the pain of the National Insurance hike for most people, cut tax on fuel, and help some of those on the lowest incomes, but it’s not enough to offset rising prices, so overall there’s a real risk we’ll all end up worse off.
Stark figures from the Office for Budget responsibility released alongside the Budget reveal just how hard price hikes will hit us, with a 2.2% fall in real disposable incomes over the next year, and inflation as high as 8.7% by the end of the year.
The raising of the National Insurance threshold will mitigate some of the financial damage the NI hike does, leaving 70% of people paying less NI than they do this year. However the tipping point comes at just over £40,000, and someone earning £50,000 will still pay £108 more than they do right now.
The promise of an income tax cut in April 2024 offers hope for the future, when the basic rate will fall by 1p, to 19p in every pound. However, there’s an awful lot of inflationary pain to get through between now and then, and while this tax cut may be a light at the end of the tunnel, it’s a pinprick of light at the end of a very long and increasingly dark tunnel.
The Chancellor had the opportunity to shelve the National Insurance hike altogether this year, which is coming at the worst possible time, slapping us with higher taxes when we’re already reeling from the biggest cost of living squeeze in a generation. Keeping this tax hike will still leave millions of people worse off than they are right now.
Help for those on the lowest incomes
People on low incomes have nowhere to go as prices rise, so the decision not to raise Universal Credit will come as a bitter blow. The lower your income, the bigger the percentage of it you spend on essentials, and the harder it is to cut costs when prices rise. Those on Universal Credit have a nightmare trying to make ends meet as prices rise through the roof and benefits are set to rise just 3.1%.
Instead of boosting Universal Credit, the chancellor offered another £500 million through the Household Support Fund. What you’ll be entitled to will depend on the criteria set by your council, so you need to get to grips with how it works, and how to apply. If you’re struggling to make sense of what’s on offer, it’s always worth talking to Citizens Advice, who know the system well and can offer all the guidance you need.
Fuel duty cut
The fuel duty cut is better than a poke in the eye with a sharp stick, but it’s hardly going to be life changing for hard-pressed motorists. Currently fuel duty costs around 58p a litre, and VAT almost 28p per litre. On a 55-litre tank, £47.30 is tax. The cut would mean fuel duty drops by just £2.75 – and with VAT on top that’s a tax cut of around £3.30.
With the cost of unleaded petrol now almost £1.67 a litre on average, it’s still going to mean we need to make some horribly difficult decisions about how and where we travel in future. It’s also going to continue inflating the cost of transporting anything to stores, which will gradually feed into the price of everything on the shelves. Life is going to keep getting more expensive, and this cut isn’t going to change that.”
* Sarah Coles is senior personal finance analyst at Hargreaves Lansdown *
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