HOUSEHOLDS are facing plenty of pressures on their finances and Chancellor Rishi Sunak has a chance to ease the squeeze with his mini-Budget next week.
Here is what Mr Sunak could announce in his much-anticipated Spring Statement to help with the cost of living crisis.Next week’s Spring Statement from Rishi Sunak is being seen as a mini-Budget[/caption]
The Chancellor is due to deliver his Spring Statement on March 23.
It functions more as an update on finances compared with the full Budget statement in the Autumn.
But with rising energy and food bills, the war in Ukraine pushing up fuel prices and scheduled tax hikes in April, next week’s announcement is being treated as a mini-Budget.
COST OF LIVING
But here are some ways that Mr Sunak could go further.
Delay National Insurance tax hike
Prime Minister Boris Johnson announced a 1.25 percentage point National Insurance rise last summer that is due to take place in April.
It will fund a social care levy but critics warn it will add hundreds of pounds to the tax workers pay just as other costs such as the energy price cap are going up.
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Both the Prime Minister and Chancellor have already reject calls to delay the increase but insurer NFU Mutual has questioned the fairness of doing this just as workers are facing skyrocketing energy bills.
Sean McCann, financial planner at NFU Mutual, said: “Delaying the rise by at least 12 months would also be welcomed by business owners, who face the prospect of paying more National Insurance at a time of rising costs in other areas like fuel and materials.
“If the hike does go ahead, employees and businesses can reduce the impact by paying more into their pensions using salary sacrifice.”
Reduce fuel duty
The Russian invasion of Ukraine has already pushed fuel prices to record highs amid concerns about oil supply.
That is hitting motorists at the pumps.
Fuel duty, the tax added to the cost of petrol or diesel, has been frozen in recent years at 57.95p but cutting it could offset the overall rise in costs.
Sarah Coles, personal finance analyst for Hargreaves Lansdown, said: “We’re not expecting anything beyond a freezing of fuel duty, but it’s important to be aware that fuel duty and VAT make up 52% of the cost of petrol, and that considering a cut in either would make a significant difference to the cost of filling up at the pumps.”
Increase tax allowances
Workers currently pay no tax on income up to £12,570 and basic rate tax of 20% on any earnings over that amount and up to £50,270, after which it’s higher rate tax of 40%.
These tax allowances have been frozen until 2026.
The freeze means that many workers will effectively pay more tax because of rising wages.
Mr McCann suggests that increasing the allowances in line with inflation would help households.
He said: “Increasing it in line with inflation, which is currently at 5.5% according to the Bank of England, would move it up to £13,261 but even moving it up to £13,000 would help put a little more money into the pockets of millions of people.
“However, the decision to freeze current allowance and Income Tax bands is expected to raise the government an additional £19.2bn by 2026.”
Change Child Benefit tax thresholds
The government introduced new rules in 2013 that said anyone earning more than £50,000 has to pay a high income child benefit charge (HICBC) to continue receiving it.
It is equal to 1% of a family’s child benefit for every £100 of income that is over £50,000 each year.
Mr McCann adds that more families are being caught in this net as wages rise but the threshold has remained the same.
He said: “As wages increase more and more families are being caught in the net, and more than a million are now affected. Increasing the threshold is long overdue, and will help families hit by rising energy and fuel prices.”
Boost benefit increases
The government temporarily removed the earnings component of the state pension triple lock last year to limit how much payments will rise by.
The State Pension could have increased by more than 8% if earnings were used as a measure but they will instead follow September 2021’s inflation figure and rise by 3.1% in April.
But Aegon warns that this increase is now way below the current 5.5% rate of inflation.
Steven Cameron, pensions director for Aegon, said: “Setting the inflation component in September when the State Pension is not increased until April has meant the pension uprating hasn’t allowed for significant rises since September.
“While these should be reflected in the April 2023 increase, many state pensioners will be left struggling.
“We’ll be on the lookout for any temporary targeted support the Chancellor may grant.
“We would welcome the Treasury committing to a reinstatement of the earnings component in the triple lock from next April.”
Similarly, Universal Credit is set to rise by 3.1% next month, which is also well below inflation.
Coles added: “This will leave those on low incomes with some desperately difficult choices.
“Whether help is specifically focused on energy prices or there’s more broad assistance to help with rising prices, the system can be used to provide help for those who are most in need.”
Lifetime ISA exit penalty
A Lifetime ISA lets first-time buyers aged 18 to 40 save for a mortgage deposit tax-free.
But that may not be the priority for some at the moment.
The government reduced the Lifetime ISA exit fee to 20% during the Covid pandemic to reflect the fact that lots of people would have to withdraw their money due to losing their job or seeing their income fall.
It has since gone back to 25% of the amount withdrawn.
AJ Bell argues that many savers will be in a tricky position now and may want to access the funds due to rising bills.
Laura Suter, head of personal finance at AJ Bell, said: “With the cost of living soaring and wages failing to keep up, it’s inevitable that some people will reluctantly have to dip into their Lifetime ISA savings just to pay their bills and meet the rising cost of food, petrol and energy bills.
“The Government could reduce the exit fee to 20%, so it just reclaims the Government bonus. It will give people a bit of breathing room to dip into their savings and not face the punitive exit fee for doing so.”
Further energy bill support
All domestic energy customers are due to get £200 off their bills in October.
But Ms Suter suggests the level of this support should be increased as energy costs have been pushed higher by the Ukraine crisis.
She said: “The current help from the Government to soften the blow of rising energy bills only covers about half of the existing increase that we’re due to see in April.
“At that point the average household energy bill will rise by £700. But if we do see energy bill costs rise another £1,000 on that, you’ve got £1,700 of increases in 2022 and just £350 of support.”
She suggests the Government could defer when the energy money has to be repaid.
Currently, this support will be repaid at a rate of £40 per year for five years from April 2023, which will be added to energy bills.
She suggested the amount given to support low income families on the Warm Home Discount scheme could also be increased from the current £150.
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