Budget 2021: 5 ways it’ll impact the pound in your pocket
This week, Chancellor of the Exchequer Rishi Sunak unveiled his second Budget of 2021.
Mr Sunak set out the government’s spending and tax plans for the year ahead, with the Chancellor highlighting that his plans were focused on life “post-COVID”. He said they would pave the way for an “economy of higher wages, higher skills, and rising productivity”.
However, the Institute of Fiscal Studies (IFS) has announced that millions of Brits are expected to be worse off next year amid spiralling costs and tax rises – with low-income families set to be the worst affected.
It said they would “feel real pain” as the cost of living is expected to increase faster than benefits. The announcement comes after the Independent Office for Budget Responsibility (OBR) warned that the cost of living could rise at its fastest rate for 30 years.
After reading the headlines you may be wondering what the Budget means for you and how it will impact the pound in your pocket.
Here we explore five key announcements from the recent Budget and how they could affect you.
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1) Cost of living to increase
It’s no secret that the cost of living is on the rise. You only need to pop to the shops for your regular grocery run to see an increase in cost.
According to the recent OBR inflation forecast, inflation is set to rise from 3.1% to an average of 4% in 2022.
However, the good news is that the decade-long freeze on fuel duty will continue for at least another year. Approximately 60% of the price you pay for fuel is tax – a mixture of fuel duty and VAT.
While the fuel duty freeze was welcomed, no measures to assist householders with rising domestic gas and electricity bills were announced.
2) Universal credit boost
People in work who receive universal credit often find the benefit amount they receive is reduced depending on their earnings. This is known as the taper rate and means that for every pound earned, 63p is automatically deducted from your benefit payment.
After the budget, the Chancellor has reduced that to 55p which will allow people to keep more of what they earn. The change is expected to take place no later than December 1.
3) Minimum wage increase and pay packets
Anyone currently earning minimum wage can look forward to a pay increase in April. If you’re aged 23 and above, the National Living Wage will go up by 6.6% as the hourly rate increases from £8.91 to £9.50.
Other minimum wage increases include:
- National Minimum Wage (21-22 years): £8.36 to £9.18
- National Minimum Wage (18-20 years): £6.56 to £6.83
- National Minimum Wage (under 18 years): £4.62 to £4.81
- Apprentice Rate: £4.30 to £4.81
If you receive Universal Credit, you may also be affected by the new taper rate so it’s important to be aware of how the changes could affect you.
The freeze on public sector wages will come to an end in April with the amount to be confirmed at a later date.
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4) Alcohol duty scrapped but the cost of cigarettes rise
The planned rise in the duty on spirits, wine, cider and beer has been cancelled. Hailed as “the most radical simplification of alcohol duties for 140 years” by Mr Sunak, the change will come into force in February 2023.
That means we’ll pay more for higher-strength drinks, such as fortified wines, but lower duty on drinks such as sparkling wine to draught beer.
It was bad news for smokers, however, with an above-inflation rise in duty on cigarettes and an 11% rise on hand-rolling tobacco.
5) Your tax bill
The government has already announced two big tax decisions ahead of the Budget.
Income tax thresholds have been frozen for five years and in September it was announced that 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.