UK's chancellor of the exchequer Rishi Sunak insisted his statement was a Budget to address the cost of living, yet many have been left wondering just how much his announcements will actually ease the pressure on their finances.
As he announced his plans for Britain’s post-COVID economy on Wednesday, Sunak was at pains to say that the pandemic is not over, and that there are “challenging” months ahead.
He acknowledged that inflation, currently at 3.1%, is likely to rise further, meaning we are in this for the long haul. There are projections that inflation could hit 4% next year.
The “rabbit-out-of-the-hat” was a tweak to universal credit, with the taper rate being cut. This will affect families on the lowest incomes, but working, meaning they will be able to keep more of their earnings.
Read more: Budget 2021: Sunak resets UK's spending focus for a post-COVID economy
At the same time, the national living wage is to increase to £9.50 ($13), fuel duty has been frozen, along with duty rates on alcohol, and there’s a new, lower rate of Air Passenger Duty on flights within the UK.
But add to this the national insurance tax hike which has already been announced — rising 1.25 percentage points from April 2022 — and it starts to feel that although Sunak gave with one hand, he took away with the other.
Here we take a closer look.
Increase to national living wage
The news of pay rises for workers, with the national living wage increasing from £8.91 to £9.50 an hour, appears generous on the surface. But it remains to be seen just how much it will help people out of financial hardship.
According to Money.co.uk, this will add £1,073.80 to the annual earnings of someone working 35 hours a week.
Michael Carty from XpertHR, said: “Increases in the minimum wage are always welcome, but with national insurance contributions increasing and tax rises expected, it might feel like a case of giving with one hand, and taking away with the other.”
An increase in national insurance has already been announced. This will add £180 a year to the tax bill for a typical basic-rate taxpayer earning £24,100, according to Hargreaves Lansdown.
Read more: National Living Wage boost for millions of low-paid UK workers
Sarah Coles from Hargreaves Lansdown said: “A major part of what people need to understand is the power of fiscal drag, because the damage was done when the chancellor announced the freezing of tax allowances in the spring.
“The personal allowance will stick at £12,570 in April, and every year until 2025/26, while the higher-rate threshold will be frozen at £50,270. More pay rises, including the rise in the minimum wage, will push more people over these thresholds, and leave them paying more tax.”
Further to this, as the rise in the national living wage is not due to take effect until April 2022, and with prices on the up, there are fears it could effectively be wiped out by the rising cost of living.
Tweak to universal credit
The announcement that the universal credit taper rate is being cut from 64% to 55% is more generous than expected. The idea behind this is to “make work pay”.
For every extra £1 earned, 55p of universal credit will be withdrawn. Along with increasing the work allowance by £500, overall, 1.9 million people will save over £2 billion, according to Hargreaves Lansdown.
Richard Eagling from NerdWallet, said: “The tapering down of universal credit rates will certainly help to ease the financial anxiety of lower-income households.”
However, there are concerns whether this will be enough.
Myron Jobson from Interactive Investor, said: “It is good news for the nation’s lowest paid workers which could soften the blow of the loss of the £20 uplift to Universal Credit for some. It essentially goes some way of righting a wrong.
“The worry is whether this will be enough to keep claimants financially afloat amid the uptick in the cost of living, with inflation forecast to peak at 4%, as well as rising energy bills. That said, a pledge to cut the taper rate from 63% to 55% by December could help support people through the brunt of the financial pinch this winter.”
Read more: Sunak announces 50% business rates discount for retail and hospitality sectors
No help with energy bills
Families worried about soaring energy bills were given little to ease their worries, with no announcement on removing VAT on bills.
Eagling said: “The government could have gone further to ease the financial burden placed on many households throughout the pandemic. For example, offering a VAT cut — even a small one — to household energy bills would offer some much-needed financial breathing space.”
Energy experts say the chancellor also missed a trick to reform the current support schemes.
Justina Miltienyte, energy policy expert at uSwitch.com, said: “With many suppliers going out of business this year, and bills on the rise, it’s a nervous time for households worried about affording their energy this winter. It’s astonishing the government hasn’t announced any targeted support in this Budget. This was a missed opportunity to reform the outdated and not fit-for-purpose warm home discount.”
Watch: Sunak announces 8% cut to universal credit taper rate
While motorists breathed a sigh of relief that fuel tax is to be frozen, given that pump prices are at record highs, many feel the government did not go far enough.
Simon Williams from the RAC, said: “We’re disappointed the chancellor did not provide some respite for drivers at the pumps. A temporary cut in VAT would have benefited them immediately at a time when filling up the car is hurting household budgets more than ever before.”
Howard Cox, founder of FairFuelUK, added: “With pump prices at their highest ever, it was a time for the government to have cut fuel duty significantly.”
Cheaper beer and wine and bubbly
Acknowledging that the UK’s alcohol duty system is outdated and complex, Sunak announced an overhaul.
There are currently 15 rates of alcohol duty, but he said this will fall to just six categories in a system based on the idea “the stronger the drink, the higher the tax”.
This means strong ciders and fortified wines will cost a bit more.
Read more: Sunak cuts draft beer duty in most radical reforms in 100 years
James Andrews from Money.co.uk, said: “By contrast, there will be price falls for champagne and other sparkling wines, fruit ciders, while lower strength beers and wines will get cheaper. There is also a 5% cut in taxes on pints pulled in pubs.”
In addition, the chancellor scrapped a planned rise in alcohol duties.
More support for parents
The Budget included a £500m plan to support parents and children in England, including £200m to support families with complex issues.
Pensioners left out in the cold
As there were no announcements to increase any of the social security payments for pensioners such as the winter fuel payment, cold weather payment, or the warm homes discount, this will come as a huge blow to many older members of society.
Ian Browne, retirement planning expert at Quilter, said: “This will further add to pensioner’s anger at the government after it downgraded the triple lock causing them to miss out on a potential 8% increase in state pension payments.”
There was disappointment on pensions too with the government planning to legislate for the increase in normal minimum pension age. “In their current form these changes bring complexity to retirement planning and open the doors to the next wave of scam activity,” said Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.
She said the proposed protection regime risks delivering a two-tier system with some people able to access their pension at 55 and others 57. “It is the perfect opportunity for scammers to crawl out of the woodwork offering to help people transfer to arrangements with a protected age of 55 while taking a huge chunk for themselves in the form of fees. We’ve been here before with the wave of free pension reviews offered in the wake of the pension flexibilities – we do not need to go back there again.”
In addition, having a range of minimum pension ages can get in the way of retirement planning. “For instance people may not be able to consolidate pots because they have different pension ages attached to them.
“In short, there is no benefit to pension savers with this increase, it’s only really pension plans who stand to benefit by hanging on to the monies for an extra two years, but they’re set against it too,” Morrissey added.Internet Explorer Channel Network