Frosty times for our finances
Thanks to the revolving doors at the government, churning out endless new Prime Ministers and Chancellors, there was yet another budget yesterday.
Thankfully, the latest ‘Autumn Statement’ wasn’t quite as batshit crazy as the September ‘Mini Budget’ that sent stock markets reeling and borrowing costs soaring (previous post here). At least this time the Jeremy ‘n’ Rishi double act got the Office of Budget Responsibility (OBR) to mark their homework, to avoid spooking the markets even further.
This budget did attempt to take more tax from the highest earners, while giving support to the most vulnerable. Jeremy Hunt wanged on about being compassionate and fair.
But there’s no sugar coating the strangling effect of rising inflation, rising interest rates and continuing recession. Particularly for those of us in the middle, the future looks bleak.
Table of Contents
What you need to know from the Autumn Statement 2022
Here are the big changes that will affect the pounds in your pocket:
Energy bills heading up by another 20%
- Yes, the Chancellor is intending to keep a lid on energy bills from April. But they’ll still be more expensive. Right now, the government is shovelling money to the energy companies to keep the average bill at £2,500 a year. From April, that cap will be chunky 20% higher, when it goes up to £3,000. And remember, that’s for average usage – use more energy and you’ll pay more.
- He’s also keen to fund unspecific energy efficiency measures that should cut the average bill by a randomly specific £450 per household in future, calling for plans and taskforces
Handouts only for the old and the vulnerable
- To combat rising energy bills, next year the Chancellor will be doling out another £900 cost of living payment to those on means-tested benefits, £300 to pensioners and £150 to those on disability benefits. The household support fund, the safety net doled out by local councils, will also be extended for another year. Yet again, pensioners get a chunky handout regardless of their age. I’m sure Mick Jagger and Elton John really need that extra £300 to keep their heating on
- What’s missing is the current £400 payment to everyone with an electricity bills. The squeezed middle can whistle for it
More help for those with heating oil
- The payment to households who aren’t on the gas grid is meant to be doubling from £100 to £200, at some unspecified mythical date. I have heating oil. It still won’t touch the sides.
Pushing up benefits and pensions by inflation
- In what must be an enormous relief to anyone coping on means-tested benefits such as Universal Credit and Pension Credit, they will go up in line with inflation, by 10.1%, from April.
- The Chancellor is also sticking by the triple lock on the State Pension, whereby it goes up by the highest of inflation, wages, or 2.5%. This means people on the state pension will also get an extra 10.1% from April. Those on the full new state pension will get £203.85 a week, which is about £10,600 a year. At this rate, looks like it’ll only be a few years until people on the State Pension have to start giving some back in income tax, with pension payments leaping up and the income tax threshold frozen at £12,570 until 2028.
Review of State Pension age
- Jeremy wants to see a review of State Pension age published in 2023 – potentially a warning bell that retirement age will go up further and faster than currently expected
Chivvying more people on Universal Credit into work
- Jeremy is channelling funds so more people on Universal Credit can meet work coaches, hoping to increase their working hours or their earnings. Theory sounds good, in practice sounds like a way to sanction more people’s benefits. I fear for those on UC with limited ability to up hours and wages due to ill health, caring responsibilities or lack of job opportunities.
Supporting other people into work
- Jeremy is worried that swathes of people have dropped out of the labour market, post Covid. He has asked for a review to find out why so many working age adults have stopped working. I fear this has more to do with caring responsibilities, ill health and long Covid than people saving enough money to retire early.
Increase in the National Living Wage
- The National Living Wage will be going up to £10.42 an hour from April. Good for the low paid. Can see this causing resentment for anyone facing lower wage rises though.
Social rent rises capped
- Social rents will *only* go up by 7%, rather than one percentage point above inflation. So a nasty rise, amid every other rising price, but not quite as nasty as it could have been.
Higher rate tax will kick in earlier
- The point when people start paying the 45% top rate of income tax has been ratcheted down from £150,000 a year to £125,140 a year. Tiny violins here for those on over £150K who’ll face paying £1,243 a year more tax from next April.
- But as a silver lining for the better off, the Chancellor won’t be introducing VAT on school fees
Freezing thresholds
- Freezing the point when people start paying taxes is a sneaky way to push up the tax take. Loads of thresholds were already frozen until April 2026, rather than rising with inflation, including the thresholds for the basic rate of income tax (£12,570), the higher rate of income tax (£50,270) and inheritance tax (£325,000 plus £175,000 for a main residence). Now they’ll be frozen right up until April 2028. Fundamentally, more people will end up paying larger amounts of tax, as wage inflation and rising house prices push their earnings and assets above the frozen thresholds.
Slashing allowances
- Investors and businesses will also end up paying more tax, as the capital gains tax (CGT) allowance will be cut from the current £12,300 to £6,000 from April, and then to £3,000 from April 2024. Similarly the reduction in the dividend allowance means investors and those with limited companies will no longer be able to earn £2,000 a year in dividends tax free, but only £1,000 a year from next April, and just £500 from April 2024. As an investor, it makes more sense than ever before to shovel money into pensions and individual savings accounts (ISAs), where any dividends or gains are tax-free. The CGT change will also hit landlords and second home owners, wishing to sell property that isn’t their main home.
- Previous post: What is a pension and why you should care
Stamp duty cuts
- The Chancellor is keeping the stamp duty cuts in place until March 2025, attempting to keep the housing market from grinding to halt – but no longer.
Taxing electric vehicles
- Right now, electric vehicles don’t pay vehicle excise duty (aka car tax), but now they will from April 2025. Not sure how that is going to help combat climate change *sigh*
Suffolk stuff
- In other, more local, news the Chancellor gave the go ahead for the Sizewell C nuclear power plant and an elected mayor for Suffolk, followed by mayors for Cornwall, Norfolk and another part of the North East.
Summary of the Autumn Statement 2022
Basically if you’re benefits or the state pension, you’ll see increases in line with inflation and extra handouts.
Some of the highest earners will see bigger tax bills.
And everyone in the middle? No extra help right now, and over time the frozen tax thresholds and slashed allowances will really start to bite.
The OBR is forecasting that living standards will drop to the lowest levels since 2013. The future looks bleak, I tell you, for the squeezed middle.
Now – over to you. What did you think of this latest statement? How will it affect you? Do share in the comments, I’d love to hear.
Sad times indeed. My dad has late stage Alzheimer’s disease and we are currently searching for a care home to cater for his increasing social care needs. The social care cap delay announced by Hunt yesterday is another kick in the teeth for families trying to manage (and budget for) the relentless care required for dementia patients. It pains me to see my parents’ life savings being swallowed up by social care costs with no respite in sight.
Author
Hi Jasmina, I’m sorry about your father and really hope you find a suitable care home to look after him. The costs and lack of availability are both nightmares for families. Dreadful situation. Do hope the government measures finally make a difference when they do come in. There doesn’t seem to be any easy solution, and I worry that capping contributions might lead to similar problems to those caused by free childcare hours, with facilities closing down when they can’t afford to continue.
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