Eight Ways Rishi Sunak’s 2021 Budget Could Affect You
Eight Ways Rishi Sunak’s Budget Could Impact You
Opening his second budget speech of 2021, the chancellor promised a stronger UK economy. The good news is the UK is recovering faster than its major competitors from Covid, the chancellor told MPs.
Rishi Sunak says the Office for Budget Responsibility (OBR) has revised up its forecasts for UK economic growth. The OBR now expects gross domestic product (GDP) to expand by 6.5% this year compared to the 4% it forecast at the Budget in March. This is below what the Bank of England expects – it is predicting 7.4% growth.
Budgets are typically a combination of giving with one hand and taking with the other – winners and losers as the government does its best to boost economic growth whilst keeping public spending in check. In reality, most people will see little difference in their daily lives and must continue to row their own boat without looking to the government to take care of everything.
Here are 8 ways you could be affected.
- Universal credit boost
If you are working and in receipt of universal credit top-up benefits, you are probably affected by what is officially known as the taper rate. That means the universal credit payment you receive is reduced as you earn more.
Depending on their circumstances around two million would be better off, but another two million claimants will see no benefit because they either do not work or do not earn enough.
It is a significant policy in tackling the rising cost of living which will be brought in “within weeks” and no later than 1 December. It comes after criticism of cancelling the £20-a-week universal credit uplift given during the pandemic which had benefitted 5.5 million people.
- Rising cost of living – inflation
Everyone knows that prices are going up in the shops and on household bills. The Chancellor confirmed the cost of living is expected to rise by 4% over the next year, mirroring market inflation expectation.
The freeze on fuel duty will continue for at least another year, to help drivers already are hit by higher prices at the pumps.
About 60% of the price we pay for petrol and diesel is tax – a mixture of fuel duty and VAT.
No measures to help householders with rising domestic gas and electricity bills.
- Minimum wage increase
As expected, workers on minimum wages will receive an above-inflation pay rise next April. For those aged 23 and above the rate – known as the National Living Wage – will go up by 6.6%, as the hourly rate increases from £8.91 to £9.50.
Minimum wage increases from 1 April:
National Living Wage for those aged 23 and over: From £8.91 to £9.50 an hour
National Minimum Wage for those aged 21-22: From £8.36 to £9.18
National Minimum Wage for 18 to 20-year-olds: From £6.56 to £6.83
National Minimum Wage for under-18s: From £4.62 to £4.81
The Apprentice Rate: From £4.30 to £4.81
Public sector staff will also receive a pay rise in April when the freeze on wages in place during the pandemic is lifted. How much this amounts to, and whether it equates to more than the rising cost of living, will be decided at later date.
The government’s official, independent forecasters – the Office for Budget Responsibility – said that real incomes for everyone would typically rise very slowly in the coming years. Income rises, after taking into account inflation and changes in tax will be no higher than 1.5% a year for each year up to and including 2026.
- Alcohol duty overhaul
Drinking is getting more expensive, with pub chains warning that higher wages and energy costs will mean much higher prices for a pint.
However, Mr Sunak announced an overhaul which he described as “the most radical simplification of alcohol duties for 140 years”, coming into force in February 2023.
This will lead to higher-strength drinks going up in price, but lower duty on drinks ranging from sparkling wine to draught beer.
The cost of smoking is rising again, with an above-inflation rise in duty on cigarettes and an 11% rise in duty on hand-rolling tobacco, taking effect within hours.
- Your tax bill
Mr Sunak said he planned to reduce taxes during the rest of this Parliament.
Although announced before this Budget, two massive tax decisions had already been made that will affect your money in the coming years.
In the last Budget, Mr Sunak said the thresholds as which income tax is paid would be frozen at April 2021 levels for five years (although Scotland has different levels). That means pay rises will push more people into higher tax bands.
In September, the government also announced employees, employers and the self-employed would all pay 1.25p more in the pound for National Insurance (NI) from April 2022 to fund social care.
The cost of a domestic flight ticket could be cut, but very long-haul flights could get more expensive.
That is because the chancellor has made changes to Air Passenger Duty – a levy paid by airlines, but ultimately funded by passengers through the cost of their tickets.
- The cladding crisis
Many homeowners of high-rise flats have faced crippling costs owing to the cladding crisis, following the Grenfell Tower tragedy.
A levy or tax on the biggest property developers of high rises to pay for the removal of dangerous cladding has been confirmed by the chancellor.
- Money lessons
To help those of the youngest age, there is extra funding for projects supporting new parents.
There is also a new UK-wide programme to improve numeracy skills. The chancellor said that individuals with poor numeracy faced up to £1,600 a year in lost earnings, according to the charity National Numeracy.
The government will spend billions on schools, police and the court service, whilst trying to balance the books and reduce taxes before the next election.
A further £24bn will be earmarked for “a multi-year housing settlement”, £11.5bn of which be set aside to build up to 180,000 new affordable homes, which he says is the largest cash investment in a decade. Brown-field land will be targeted for new homes, he says.
Rishi Sunak briefly mentioned a visa scheme to attract the brightest and best to come to the UK to work or start a business.
With inflation rising and interest rates due to be increased, there has never been a more important time to stay informed and never stop learning, especially if you want to invest in property.
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