Today’s new announcements from the Chancellor are:
- A cut in the Universal Credit taper from 63% to 55%, so for every extra £1 earned, 55p of Universal Credit will be withdrawn. Along with increasing the work allowance by £500, overall, 1.9 million people will save over £2 billion. It will be brought in no later than November 1st.
- An overhaul of alcohol duty, so the higher the alcohol content, the higher the tax rate. The government will cut the rate on sparkling wine and fruit cider, introduce draught relief on pints pulled in pubs at 5%, saving 3p a pint. It will also cancel the planned rises in all alcohol duties.
- Air Passenger Duty. Domestic flights will be subject to a new, lower rate of air passenger duty, so 9 million people will see duty halved. From April 2023 there will be a new ultra-long-haul band for people flying 5,500 miles or more, with an economy rate of £91.
- The fuel duty increase will be cancelled again. The planned rise was 2.84p a litre, which would have added £1.27 to the price of filling up.
- A residential property developers’ tax, at 4% of profits over £25 million, will help pay for the removal of unsafe cladding on the highest risk buildings, which will ease the pressure on those living in blighted properties.
What we already knew:
Tax
- National Insurance will rise 1.25 percentage points in April, to 13.25% on earnings between £9,564 and £50,268, and 3.25% on earnings above this.
- Dividend tax will rise 1.25 percentage points in April to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
Spending
- The National Living Wage for workers aged 23 and over will rise 6.6% in April to £9.50 an hour. 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.
- The pay freeze on public sector wages brought in last November will be lifted, allowing bigger pay rises for workers including police officers and teachers.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown comments:
“The budget offered some relief for those on low incomes who are under horrible pressure from rising prices on all sides, along with the feelgood factor of cut-price pints and bargain bubbly. However, despite none of them getting a mention in the speech, we still face the nightmare of rising taxes.
The Universal Credit taper currently withdraws cash from people on lower incomes faster than the effective tax rate of people earning over £100,000, so the cut in the taper is a welcome change. For those who are able to work more, it will help offset the impact of the withdrawal of the £20 a week extra paid at the height of the pandemic. However this measure will only boost the incomes of 2 million people, so millions more will remain worse off.
Not announced, but buried in the Budget documents, was news that council tax looks set to rise, with councils able to raise taxes by 2% without a referendum, plus another 1% for social care. Police and crime commissioners will also have the power to increase the money they raise through council tax. These hikes will add insult to injury for taxpayers who are already feeling the pressure from rising prices on all sides.
And it’s not just the tax hike announced in the Budget we have to worry about, but the mushrooming tax bills that didn’t get a mention. The damage was done when the Chancellor announced the freezing of tax allowances in the spring. The personal allowance will stick at £12,570 in April, and every year until 2025/26, while the higher rate threshold will be frozen at £50,270. More pay rises, including the rise in the minimum wage, will push more people over these thresholds, and leave them paying more tax.
A cut to alcohol tax is always a morale booster in a Budget, so multiple cuts, including planned duty hikes are worth raising a glass to. Axing the prosecco premium will make it more affordable to crack open the bubbly. The draught relief also offers a welcome boost for pubs and drinkers, cutting the price of a pint by 3p. Unfortunately, it comes on the back of warnings that pressure on pubs from rising prices and rising wages will force them to increase their booze prices, so even after this cut, drinkers could pay more.
Cancelling the fuel duty rise was the only sensible move after the price of petrol hit a record high of 142.94p on Sunday. Duty already makes up 57.95 pence of the cost, and VAT another 23.69p, so it would have been incredibly difficult to justify hiking tax on fuel further at the moment. Unfortunately, for motorists this isn’t going to cut the cost of filling up, just avoids making life even harder overnight.”
