What the budget means for you and your money

  • By Kevin Peachey
  • Cost of Living Correspondent

image source, Getty Images

Policies aimed at getting people into work and keeping them there are central to the Budget – leading to important changes to childcare and pensions.

The continued strain on households facing skyrocketing prices was also a key factor when Chancellor Jeremy Hunt delivered his first Budget speech.

This is how his decisions will affect you and your finances.

Energy bills help extended

Support with energy bills will continue for another three months in England, Wales and Scotland, reversing a plan to make it less generous.

Under the Energy Price Guarantee, the government has capped the energy bills of a typical household at £2,500 a year, plus a winter discount of £400.

The guarantee continues at the same level until July, when the price of energy should have fallen enough to make it redundant.

That doesn’t mean it’s impossible to pay more than £2,500 a year for your gas and electricity – that’s the marker for a home using a typical amount of energy. Bills in large, poorly insulated homes would cost more, but less in smaller apartments.

The household’s bill is typically still twice as high as in winter 2021-22. Prepaid meter customers pay the same rate, but those paying quarterly by cash or check will still pay more.

Critics say the £3bn extra it will cost the government to continue support would be better spent if it is targeted at those on lower incomes who really need it, as is the case with cost of living payments.

The £400 winter discount ends, with no plans to repeat next winter.

Energy is regulated separately in Northern Ireland, where bills will be kept at £1,950 a year for an average household.

Childcare costs discounted for some

Working parents with three- and four-year-olds are entitled to 30 hours of free childcare per week. This will be extended to younger children in England when both parents are working.

Similar funding will be provided to the authorities in Wales, Scotland and Northern Ireland.

The rising cost of childcare has been seen as a disincentive for some parents to return to work or work full-time. Still, there are questions about whether the policy will actually mean more hours for parents and whether there are nursery places available for their children.

As a result, it will be a phased introduction with 15 free hours of childcare for two-year-olds in April 2024 and in September 2024 for those over nine months, then 30 hours for everyone from September 2025.

In addition, families on Universal Credit – a benefit paid to those on low incomes who may or may not be in work – will receive childcare funding up front rather than having to claim it back.

The maximum amount people on Universal Credit can claim for childcare also goes up to £951 for one child, after being frozen at £646 a month per child. child for several years. That will be £1,630 for two children.

There are also funds for pre- and post-school for children of school age.

Working longer as pensions change

The tax-free limit for lifetime pension savings will be abolished in April. At present you can save just over £1m before an additional tax is charged. The effect will be that rich savers put a lot of money into pensions.

The annual allowance will remain in place but will rise from £40,000 to £60,000, after being frozen for nine years. Those who are already drawing a pension, but would like to save more, will be able to put in 10,000 kroner per year instead of 4,000 kroner.

It is a policy aimed primarily at keeping doctors and consultants working in a stretched NHS, rather than taking early retirement, reducing hours or rejecting overtime for tax reasons.

However, it will also help other wealthy pension savers and public servants who have been in their roles for a long time.

Prices continue to rise, but more slowly

Rising prices have been extremely difficult for many people to deal with, especially as they have focused on the essentials of food and energy.

image source, Getty Images

But the government’s independent forecasters, the Office for Budget Responsibility (OBR), now expect the rate of inflation – which reflects the rising cost of living – to fall to 2.9% by the end of the year, after peaking at over 11%. The target for inflation is 2 per cent.

Prices will still rise in stores, but not as fast as they have been. That’s not to say that there won’t be painful price increases. For example, there will be big increases in broadband and mobile bills for millions of people in April, and many homeowners will face higher mortgage demand.

disability pension review

Currently, people with disabilities must complete a work capacity assessment to test which work-related responsibilities must be maintained in order to receive full benefits.

This will be abolished, and the right to benefits will be separated from the individual’s ability to work as part of a planned revision of the system.

From now on there will be only one health and disability assessment – the personal independent payment (PIP) assessment.

Fuel tax frozen again

Fuel tax is a tax motorists pay when they buy fuel such as petrol and diesel.

A planned increase would have led to an increase of 12p per liter across petrol and diesel prices, but it has been frozen again. Indeed, a 5p cut will continue for another year. All this is likely to cost the exchequer around £6bn.

Cigarettes and alcohol

The customs duty on alcohol increases at the beginning of August, when a new system for calculating taxes on alcohol is introduced. But there will be a better offer for draft beer in pubs. The tobacco tax will increase.

Key decisions taken before the budget

Remember that some of the biggest decisions affecting your finances in April and beyond have already been made.

It was in November’s Autumn Statement that Mr Hunt said benefits and the State Pension would rise in April by 10.1% and that additional living expenses would also be delivered in the coming year.

Really importantly, income tax bands – or thresholds – are already frozen until 2028. This means that any kind of pay rise could drag you into a higher tax bracket. Even if it doesn’t, it will almost certainly mean that a larger portion of your income is taxed.

You start paying income tax on annual earnings of more than £12,570, charged at 20%. You then pay tax at 40% of earnings above £50,270 a year, although the bands are different in Scotland.

Another announcement in the last major statement is that the top rate of income tax – which is currently 45% on earnings above £150,000 – will be paid on earnings of more than £125,140 from April. This means the highest earners could pay hundreds of pounds more a year in income tax.

It was previously announced that the minimum wage for people aged 23 and over – the National Living Wage – will rise to £10.42 in April from £9.50 an hour – a move affecting around two million people. It is the employers who must bear this cost.

A host of public sector pay disputes – such as those for teachers and railway workers – continue as workers feel their pay has failed to match the rising cost of living.

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