What Does The Latest Budget Mean to Young Families?
Like the vast majority of the UK, you're probably worried about the new budget and how it will affect your family.
This week, the government has reversed a whole host of tax reforms and scaled back energy help previously announced in September's mini-Budget in an effort to reassure markets and ease financial turmoil that has triggered a spike in mortgage rates.
We currently find ourselves in a real mess with increasing numbers of people struggling to keep up with the rising cost of living and paying their bills, so it's no surprise that families are wondering what this budget will mean for them.
In this article, we've broken down all of the important points in Jeremy Hunt's revised mini-budget, what it means to you and the little things you can do to navigate this mess.
- The proposed income tax cut of 1p due to take effect in 2023 has been frozen.
- Alcohol duty rates will rise in line with inflation, meaning that prices for beer, cider, wine, and spirits will increase.
- The government has announced that it will offer targeted help to "hard-up households" who will see their energy bills increase in 2023.
- The best way to save money on your energy bills is to make sure you're on the best tariff available and to keep an eye on your usage. (Variable rates are currently the only energy tariffs available, but your mortgage rate will not increase if you have a fixed rate).
The reason I've put this at the top of the list is down to the fact that, for most of us, it's one of our largest outgoings.
Your income is normally deducted at source by your employer before you even see it, so it's important to know how much is actually going out of your bank account each month.
In effect, what Jeremy Hunt did was postpone the proposed tax cut 1p (taking the 20p basic tax to 19p) indefinitely...
The reality is that, on average, someone paying the basic rate of tax earning £15k would have been saving a £24 a year - after the mini-budget, this is no longer the case.
Energy Price Guarantee
The energy price guarantee is a government initiative that was supposed to help families with the cost of their energy bills - it was designed to protect consumers by capping the unit price of energy at 34.0p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT, effective from 1 October 2022.
It was initially set to be frozen at £2,500 for two years, however, it's now due to be reviewed in April 2023, after which "targeted help" will be offered to what the government deems to be "hard-up households", potentially leaving households like yours out in the cold.
The best thing you can do for now is to make sure you're on the best energy tariff available to you and to keep an eye on your usage so that you don't get hit with any nasty surprises when your bill comes through.
Our new Chancellor (Jeremy Hunt) announced plans to raise taxes on beer, cider, wine, and spirits, reversing a decision made only a few weeks ago by Kwasi Kwarteng, who had scrapped planned hikes to duty rates for these drinks. However, as part of larger plans to raise £32 billion and help calm the markets, that will now go ahead as originally intended.
Controversially, this covers the vast majority of families up and down the country, as alcohol features in most homes.
The government has announced that alcohol duty rates will rise in line with RPI (Retail Price Index) - but they were previously going to be frozen.
The alcohol duty, which is the tax placed on alcoholic drinks, has recently risen alongside the Retail Price Index (or RPI) of inflation. The RPI is currently at 12 percent - the highest percentage since the 1980s.
The freezing of taxes is anticipated to save the Treasury about £600 million this year, which is equivalent to 7p on a pint of beer, 4p on a pint of cider, 38p on a bottle of wine or £1.35 on a bottle of spirits.
One of the only policies to make it through Jeremy Hunt's raid on government reform was the freeze on National Insurance - millions of already-stretched households can still look forward to an average £330-per-year booster (depending on income).
In an attempt to salvage what is left of Liz Truss' legacy and premiership, national insurance could be seen as the last bastion of hope for the Conservative Party's chances at re-election in two years' time.
The real question is: does this change the way you would vote in the next election?
By freezing the National Insurance hike, it seems as though the government is looking to score some easy points, leaving some of us feeling a little "icky".
IR35 tax rules to stay
The good news is: from April 2023, the government will no longer repeal the 2017 and 2021 reforms to the IR35 off-payroll working rules. Also known as, the IR35 tax scheme hits self-employed workers who have set themselves up as private companies.
The IR35 tax scheme primarily affects self-employed individuals who have establised themselves as private companies. Many professions are included in this bracket, such as delivery drivers and construction contractors. Essentially, if you mainly work for another business that doesn't put you on the payroll, then IR35 is applicable to you.
At present, it falls on the company whom you do most of your working for to make the judgement call regarding your taxation status—not yourself.
Although the main point here is "housing", what we really mean is Stamp Duty - essentially, this is a property transaction tax paid on any property purchased at more than £250,000 (up from £125,000 in Sept '22).
If you're a homebuyer in the UK, know that the cut to stamp duty will stay in effect, saving you up to £6,250.
The idea behind raising the Stamp Duty threshold was to keep the momentum of an already- slowing housing market going.
Think about it; when you buy a house, this isn't your only purchase - there'll be renovation and/or decoration costs, new furniture purchases, legal fees, insurances (the list goes on). When you factor in all of those other associated costs, the £6,250 savings on Stamp Duty will be a helping hand for many.
Will utility bills be higher in 2023?
Yes, energy bills will be higher in 2023, but the government has announced that it will offer targeted help to what it deems to be "hard-up households".
How can you save money on your energy bills?
The best thing you can do is to make sure you're on the best energy tariff available to you and to keep an eye on your usage.
Is it better to go fixed or variable energy 2023?
The vast majority of fixed rate tariffs have now been pulled by suppliers, so variable rates are currently the only options available.
Does my mortgage rate go up if I have a fixed rate?
No, your mortgage rate will not go up if you have a fixed rate. The only time it is increases is at the end of your fixed rate period.
The latest budget has a mix of good and bad news for young families. On the one hand, alcohol duty rates will be going up, but on the other hand, the National Insurance hike has been frozen.
Housing costs will also go up, but homebuyers will save up to £6,250 on Stamp Duty. Finally, energy bills will be higher in 2023, but the government plans to offer targeted help to struggling households.
What do you think of the latest budget?
Let us know in the comments below.