Yesterday, I listened to Rishi Sunak’s Budget 2021 speech so you don’t have to.
I got to sit through commitments to cut taxes in future, once we’ve shed some Covid-induced debt, while still promising to spend money hand over fist.
The speech was pretty uneventful on the personal finance front, partly because so much had been leaked beforehand.
Instead, the Chancellor got to describe money for pot holes as an ‘infrastructure revolution’ and reduce tonnage tax to encourage more ships to fly a red flag. He also promised to chuck money at early years education and childcare, which sounded suspiciously like the Sure Start centres this government previously shut down. You couldn’t make it up.
Here are the bits that actually affect the money in your pocket:
- Fuel duty has been frozen yet again, which is a bit of a relief given petrol price rises recently
- Tax on booze has been simplified so the stronger the drink, the more duty you pay. So that’s bad news if you have a serious Buckfast or White Lightning habit, but savings galore on Prosecco, rosé and fruit ciders. Drinkers will also save 3p a pint on draft beer in pubs.
- Air passenger duty on internal flights will be reduced, which makes me want to bang my head against a wall because *ahem* climate change? Aren’t we meant to be flying less? Buy hey, great if you like quaffing champagne on short flights. However, if you fly really far after April 2023, there will a new pricier ultra-long-haul flight band of air passenger duty.
- National Living Wage will go up next year, as leaked beforehand, to £9.50 an hour for those over 23. The National Minimum Wage for those aged 21-22 will rise from £8.36 to £9.18 an hour and the Apprentice Rate from £4.30 to £4.81.
- People in work on Universal Credit should be able to hang on to more of the money they earn, because the Chancellor is raising the work allowance by £500 and cutting the earnings taper. This means that rather than losing 63p in every £1 of benefits, over a certain limit, Universal Credit recipients will only have 55p docked. That’s still a pretty painful marginal rate of tax, and will do little to counter the effects of removing the £20-a-week extra Covid payment.
Ignored in the speech but buried deep in the paperwork where a few other surprises:
- Council Tax could go up more than before, with Councils free to hike bills to pay for social care.
- Good news for low earners, who previously missed out free money on their pensions, just because their employers deducted contributions in a particular way. From 2025/26, the government will make top up payments for those in ‘net pay’ arrangements who previously didn’t benefit from tax relief because they didn’t earn enough to pay tax. This is a £53/year benefit for about 1.2 million people, predominantly women, who really need those extra pounds in their pensions.
And the lingering hangover? Well, issues with staff, supply chains, delivery and fuel costs mean we need to brace ourselves for higher prices. Knocking a bit off taxes on fuel, booze and flights won’t touch the sides.
Plus as wage inflation ticks up, we’re all going to be paying more in tax. The Chancellor didn’t need to mention income tax threshold in this speech – because he froze them all in the Spring.
The personal allowance – aka the amount you can earn each tax year without paying a penny in tax – is stuck at £12,570 until 2025/26. The point you start paying higher rate taxes, at £50,270, will also stay the same for the next 5 years.
So gradually as pay creeps up over the years, the tax man will be taking more of our hard-earned cash, leaving us with less to cover rising living costs.
A raft of other allowances were also frozen: capital gains tax allowance at £13,200, the lifetime allowance for pensions at £1,073,100, the nil rate band for inheritance tax at £325,000 and the residential nil rate band at £175,000. If house prices and investments continue to rise, we’ll be paying more of those taxes too.
So quaff cheap fizz while you can. Because with prices rising and the tax take creeping up, we’ll have less to spend on anything else.
Now – over to you. What do you think about yesterday’s Budget? Do share in the comments, I’d love to hear!
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