UK budget little relief to young people squeezed by cost of living
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CNBC has learned that financial advisors and analysts from the U.K. have said that their latest budget announcement provided little hope for those young people living in poverty due to rising living expenses.
His Spring StatementRishi Sunak, the U.K. Finance Minister, acknowledged that Russia-Ukraine war had increased the costs of living, as prices have already risen due to problems in supply chains in the aftermath of the Covid-19 pandemic.
On Wednesday, data showed that U.K. inflation was up 6.2% in FebruaryExpect prices to increase further. Sunak mentioned an Office for Budget Responsibility prediction that inflation would average 7.4% in 2017.
Sunak has announced a reduction in fuel taxes by 5pence (6c) per liter to combat rising prices. This will be effective immediately and take effect from Wednesday, 6 pm.
Myron Jobson, senior personal finance analyst at U.K. platform Interactive Investor, pointed out that this reduction in fuel duty would cut the cost of filling up the average family car by £2.75. According to Jobson, this reduction in fuel duty was “small compared with recent rises in the cost for fuel”, and would only cover the cost a cup of coffee.
Jobson stated that Sunak’s decision to reduce the 5% VAT (salestax) on energy-efficient equipment costs for household did not alleviate “crushing” living expenses on Britain’s most vulnerable citizens.
He stated that the policy did not consider the situation of nearly 40% of U.K. households who live in rented housing and feel the brunt of rising energy costs.
The U.K. is set for a dramatic rise in energy bills, due to the country’s increasing dependence on foreign oil. energy regulator due to raise its capPrices up to 50% for April
Prior to Wednesday’s announcement, there had been several measures to address rising living expenses.
Certain households will be able to start paying rent starting in April receive a payment of £150to receive a reduction on the local authority tax payments. From October, eligible U.K. households will then get a £200 discount on energy bills, though the government will recover this money in £40 installments over five years, beginning in 2023.
Major increase in national insurance
In Wednesday’s statement, Sunak also revealed that from 2022 the earnings threshold at which workers start paying National Insurance would rise by £3,000 to £12,570 a year. National Insurance, a U.K. income tax that is used to fund state services such as the National Health Service, is what we refer to.
Sunak however decided to raise the National Insurance contribution rate by 1.25% for one-year starting in April 2022.
Shaun Moore, tax and financial planning expert at U.K. financial services firm Quilter, said under these changes anyone earning below £34,300 a year will now face a lower National Insurance bill in 2022/23 than in this tax year, while those paid more than that amount would see this tax rise.
Sunak stated that, by 2024 the base income tax rate will be cut to 1 pence per pound.
Sarah Coles from Hargreaves Lansdown was senior personal finance analyst. She said, however that this gave some light at the ends of the tunnel but there’s still quite a bit of tunnel left.
Student ‘Little Reprieve’
Jobson stated, however that Sunak had also not addressed recent criticisms about the Kickstart Youth Employment program funded by government.
The Public Accounts Committee, which examines the value for money of government projects, labeled the early delivery of the £1.9 billion plan as “chaotic” and said it had supported fewer young people than predicted.
Jobson stated that many youngsters are still struggling to secure a meaningful job after losing two years’ worth of opportunities through Covid.
He said that the Spring Statement did not offer any relief for potential students.
In February the U.K government declared a number of reforms to college student financing. This included lowering the threshold at which graduates start to repay state-funded college loans to when they earn £25,000 a year. This is down from the current level of £27,295.
Rosie Hooper, chartered financial planner at Quilter, calculated that this meant a future graduate earning more than £25,000 would pay £260.55 a year more than a graduate on the previous repayment plan.
Hooper also stated that government was considering extending the 30-year repayment period to 40-years. He said this would mean many graduates will need to pay 9% to cover their “entire professional life.”
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