With Chancellor Rishi Sunak announcing a Budget that sets out the economic plans for winter, we look at what it means for your personal finances – and the planet.
Living wage increases
The level of the national living wage will rise to £9.50 from April, and the Chancellor also paved the way for public sector pay increases for five million workers next year – although it is not yet known if these will outstrip inflation.
The national minimum wage for people aged 21-22 is to go up from £8.36 to £9.18 an hour, while the apprentice rate will increase from £4.30 to £4.81 an hour.
Universal Credit to help “make work pay”
There is also a cut to the Universal Credit taper to “make work pay” for millions more working families. Currently set at 63 per cent, the taper reduces Universal Credit by 63 pence for every pound earned above a certain threshold. This will reduce to 55 per cent by December 1 this year. Sunak claimed this would make two million working families better off by £1,000 a year on average.
National Insurance rises
A similar increase will also apply to employers’ National Insurance payments. From April 2023, the higher NI rate will apply to people working beyond the state pension age.
Pension tax loophole fixed
The Government is to fix a tax quirk that deprives low-paid workers of pension cash paid to better off colleagues – but not until 2025.
The reform will mean that lower earners will receive government top-ups to ensure they’re getting the tax relief they deserve. This will boost pensions savings for low earners by £54 a year on average, impacting 1.2 million people (75 per cent of whom are women). While the move has been welcomed, critics say it should have been implemented way sooner. The top-ups will be paid after the end of the relevant tax year, with the first payments being made in 2025-26.
Review of pension charges cap
Sunak also announced a review of the ‘charges cap’ for workplace pensions schemes that are used for auto-enrolment. Currently, these have a charges cap of 0.75 per cent.
The cap was introduced to protect savers from hefty investment fees on their retirement savings, but it meant that schemes struggled to invest in more expensive asset classes such as infrastructure. In a bid to increase the money flowing into government infrastructure from UK pensions, there will be a consultation on changing the charge cap.
Just a few days before the COP26 climate talks in Glasgow, it was the absence of the climate crisis from the Budget that was most notable.
Domestic flights made cheaper
The Chancellor announced that flights between airports in the UK nations will have a new lower rate of Air Passenger Duty from April 2023. With the move making flying between British cities cheaper, Sunak said most greenhouse gases from aviation come from long haul flights. From April 2023, a new ultra long haul band in Air Passenger Duty for flights of over 5,500 miles will be introduced.
(Modest) boost for sustainable transport
City regions are to receive a total of £5.7 billion towards sustainable transport, while another £1.2 billion will go towards improving bus services. However, only £1.5 billion of this appears to be new money, with £4.2 billion having already been announced in 2019 for cities, and the bus funding coming from a £3 billion fund promised by Boris Johnson last year.
Meanwhile, Sunak announced £21 billion for roads and a freezing of the duty on fossil fuels used by cars for the 12th year in a row amid record high prices.
Investment relief for green tech
Sunak committed to a new investment relief to encourage businesses to adopt low-carbon technologies like solar panels and heat pumps. This will run from 2023 to 2035.
There is also a £520 million ‘Help to Grow’ initiative to support small and medium sized enterprises (SMEs) with training and software. This is because most UK SMEs are less prepared than corporates for the net-zero transition, largely due to a lack of in-house expertise and finance.
Second green bond
The Chancellor also mentioned the second green bond, launched earlier this month, which he said had made the UK the “third-largest issuer of sovereign green bonds anywhere in the world”. However, the 0.65 per cent interest rate on offer may be too low to compete with rival sustainable savings products.