In a speech focused at least in part on the upcoming election, Chancellor Jeremy Hunt outlined his choices and decisions regarding the country's finances.
In turn, this will affect the money and prospects of individuals across the country.
Here are some of the key policies affecting your personal finances.
A tax cut, but don't forget the big picture
The Chancellor announced a cut in National Insurance (NI) rates.
NI works in the same way as income tax, deducting a fixed percentage of the money you earn from your salary. What you pay in pounds and pence of course depends on how much you earn.
Employees under state pension age who earn less than £12,570 a year do not pay NI, nor do people over state pension age, even if they are still working.
For employees earning between £12,570 and £50,268, the current NI rate is 12% on earnings and 2% on earnings above that.
This initial contribution will be reduced from 12% to 10% from January 6, which the Chancellor says will save £450 for someone on an average salary of £35,000.
What's really important, this only partially compensates for the fact that income and income tax brackets or thresholds are already frozen until 2028. This means that any kind of salary increase could land you in a higher tax bracket, or see a greater proportion of your income taxed. than might otherwise be expected.
The chancellor also said NI contributions would be reduced for the self-employed. It abolished flat rate weekly class 2 contributions of £3.45 per week, currently paid if earnings for the year are above £12,570, and reduced class 4 contributions on all incomes between £12,570 and £50,270 at a rate of 9%. at 8%.
VAT – a tax added when you buy most goods and services – is unchanged.
Price increases expected to slow
Sharp price increases, particularly for basic necessities such as food, have been at the heart of the cost of living pressures felt in recent times. Compared to two years ago, food prices have increased by 30%, according to official figures.
The government's independent forecaster, the Office for Budget Responsibility (OBR), now expects the inflation rate – which reflects the rising cost of living – to fall to 2.8% by the end next year, after peaking at over 11% in October last year. . However, we must remember that this is a forecast and not data.
The target set for inflation is 2%, which the OBR predicts will be reached in 2025.
Prices will continue to rise, but not as fast as before. We could hear of another price rise as early as Thursday, when energy regulator Ofgem is expected to allow suppliers to charge more than now for domestic gas and electricity from January to March.
All of this feeds into the decisions of the Bank of England when it sets interest rates, which affects the cost of borrowing, including mortgage rates.
Will we feel the benefit?
Ultimately, the OBR says living standards, as measured by real household disposable income per person, are expected to be 3.5% lower in 2024-25 than before the pandemic – the sharpest reduction in real living standards since official records began in the 1950s.
The minimum wage will increase in April
Those on the lowest incomes will get a pay rise in April, with 21 and 22-year-olds getting the biggest increase.
- The national living wage for over-23s increases from £10.42 an hour to £11.44 an hour.
- People aged 21 to 22 will be eligible for the National Living Wage for the first time, so they will also receive £11.44 an hour, up from £10.18 an hour.
- National minimum wage for 18-20 year olds rises from £7.49 to £8.60 an hour
- The national minimum wage for under-18s will rise from £5.28 to £6.40 an hour
- Apprentice rate increases from £5.28 to £6.40 per hour
The apprenticeship rate applies to people aged under 19, or to people over 19 in the first year of an apprenticeship. The minimum wage is the same in all parts of the UK. Employers will foot the bill, even though the government itself is a major employer.
Confirmation of an increase in benefits of 6.7%
A series of benefits received by millions of people will increase by 6.7% in April, in line with the rate of price increases (in September), after some debates at the Treasury.
Some disability benefits, by law, are linked to inflation, but ministers have been given some flexibility on others, such as universal credit, claimed by 6.2 million people, many of whom are in work.
There is a complex range of benefits. As an example, a family with two children on standard benefits is expected to receive around £900 more in the year from April, compared to the previous 12 months, according to the Joseph Rowntree Foundation. The chancellor said the average increase would be £470 for 5.5 million households next year.
Benefits are being fully transferred in Northern Ireland, but the changes are likely to be similar to those in the rest of the UK.
Rent payment assistance is improved
Support provided through the benefit system to private renters via local housing benefit rates has been frozen since 2020. Recently the cost of rent has soared, leaving many people struggling to pay.
The benefit determines the amount of help people who rent privately get to cover the cost through Housing Benefit or Universal Credit. It will now represent 30% of local market rents.
But social benefits are threatened for some
Part of the speech, but outlined in advance by ministers, concerns a plan to encourage people to take up work.
From the end of next year, anyone who cannot find a job for more than 18 months will have to undertake an internship.
Some claimants who refuse to work or engage with employment agency staff will need to reapply for benefits and will therefore no longer have access to them for a period of time. MPs will have to approve the plan.
There will also be an overhaul of the rules for people who are currently receiving benefits because they cannot work due to health problems.
State pension increases
There has been intense speculation that state pensions will be increased next April, but Mr Hunt ultimately said he would stick to the conventional increase under the triple lock.
This promise foresees that the state pension will increase according to the highest average salary or inflation, i.e. 2.5%. It will increase by 8.5% depending on salary increases (including bonuses).
This means that from April 2024 it will be worth:
- £221.20 per week for the new full, flat-rate state pension (for those who reached state pension age after April 2016)
- £169.50 per week for the old full basic state pension (for those who reached state pension age before April 2016)
More expensive to smoke, but not to drink
Duties on hand-rolling tobacco will rise by a further 10%, but on beer, cider, wine and spirits will be frozen until August next year – a year after the last increase.
The future of cost of living payments?
Nothing was said about cost of living allowances, which provide a lifeline for many people on low incomes.
There will be another payment for retirees this winter, and another for low-income people on benefits in the spring. For now, there appear to be no clear plans for additional targeted financial assistance to help people pay their bills.