Inflation hit another high of 6.2% when the Chancellor gave his spring declaration this week – one that has been heavily criticized for failing to adequately address the deepening cost-of-living crisis.
Households were desperate for emergency relief to help with energy bills, such as £200 support scheme into a scholarship – at least for the low-wage earners – but to her disappointment the Chancellor completely ignored the issue.
What he has announced is a income tax cut before the next general choice — in 2024 — and a raise in the National Insurance (NI) threshold, meaning fewer people will have to pay a 1.25 percentage point tax increase later this year.
But the reality is that wages just aren’t rising at the same pace as basic necessities.
As alarming letters land in our mailboxes telling us of massive increases, we answer some of your biggest questions about what it all means for you.
What is inflation?
Inflation is the number used to explain how much the prices of everyday items are increasing.
In February it was 6.2%which means you’re now paying more for goods and services on average than you were a year ago.
Why is this happening?
A “Cost of Living Crisis” simply refers to the fact that the prices of things like energy, fuel and food are increasing faster than household income.
The current crisis began when post-pandemic demand for everything exploded. It’s a “crisis” because costs are high everywhere – on food, gas and energy bills – and not just one item in just one area.
Some of the factors driving the current price hike are staff shortages, high demand for oil and gas, and uncertainty about supply due to the Ukraine Conflict – although the cost of living crisis had escalated prior to the invasion.
Which key points do I need to know from the spring statement?
In September the government announced that from April this year workers will pay 1.25p more in pounds from their pay package in NI contributions.
But the chancellor Rishi Sunakhas now raised the income threshold at which people start paying NI.
Currently, most workers start paying NI when their income reaches £9,568. You pay 12% of earnings between £9,568 and £50,270, then 2% on any earnings over £50,270.
But in a U-turn, the Chancellor said that from July there would only be NI must be paid for income over £12,570 per year – the same amount at which income tax begins to be paid.
In practice this means that anyone earning less than around £35,000 a year will pay less NI over the course of the year. That is about 70% of all employees. Those who earn more get a tax increase, albeit less than expected.
For an employee earning £20,000 a year, that means an annual social security cut of £180 in 2022-23, according to accounting firm Deloitte, rather than an £89 increase expected before the announcement.
Earlier last year, Sunak said the thresholds at which income tax is paid would be frozen at April 2021 levels for five years. If implemented, wage increases would mean millions more earners would be pushed into higher tax brackets.
But now he has agreed Cut the property tax rate by 1 pence per pound before the end of Parliament in 2024.
Income tax works so you pay nothing on income up to £12,570 a year.
You then pay 20p for every £1 you earn between £12,571 and £50,270 a year.
This is known as the ‘principle’ of income tax and Sunak reduces it by 1p.
Sunak also repeated a £150 council tax refund which will be available to people in bands AD from April. He also said the £200 energy support scheme will continue as planned.
In a longer-term move, he said VAT on energy efficiency products such as solar panels, insulation and heat pumps would be reduced from 5% to 0%.
Addressing the rising cost of cars, he announced a 5p per liter reduction in fuel levy for next yeartaking some of the sting out of rising prices – although average fuel bills are still up by around 40p a liter over the last 12 months.
The RAC car organization said the move would deduct £3.30 from the cost of filling a typical 55-litre family car.
Local councils will also receive a further £500m from the Household Support Fund, which supports vulnerable people with payments and grants such as vouchers to help them pay their bills – more on this below.
What will happen to prices next month?
Price hike season is typically in April, when expenses like phone bills, council taxes, energy prices, and essentials like prescriptions and postage stamps come up tend to increase in price.
April also marks the start of a new tax year that will see the minimum wage, state pension, benefits and other annual increases go into effect.
The good news is that most people will take home a little more salary, but the bad news is that it won’t rise in line with inflation, meaning some of that extra money will be wiped out almost immediately.
If you’re 23 or over, the National Living Wage goes up from £8.91 to £9.50 on April 1st.
Will my energy bill definitely go up?
Yes, most likely.
That’s because a price cap on adjustable-rate energy bills, which 80% of the country has, will rise by around 54% on April 1.
A household using an average amount of energy pays an additional £693 per year.
When wholesale gas prices soared last year, almost all cheap fixed rates disappeared.
The remaining fixed tariffs were so expensive that households have largely switched to variable tariffs.
Others have ended up on variable rate plans because their current fixed rate contract has expired.
Why has my energy supplier discontinued my direct debit procedure?
If you pay for energy by direct debit and use a standard tariff, the amount taken from your bank account will most likely increase with the new cap.
However, some customers have complained about premature and sometimes unjustified increases.
You may be able to contest it.
If you don’t have a fixed-price plan, your bill will likely go up – and there’s little you can do about it.
But if your energy company has told you that your direct debit will be higher than 54% and you haven’t underpaid on previous payments, then take action.
Read the meter reading and speak to your supplier. Keep in mind that while your supplier can change your direct debit amount, they must notify you in advance if money is taken from your account.
This should be around 10 working days to a month before the change.
Do I have to take a meter reading?
Yes. Even if you have a smart meter, the advice is Read the meter reading and hand it in on Thursday, 31before the new higher cap takes effect.
This ensures that usage up to that point is billed at the lower rate.
Should I buy energy in bulk?
Some prepaid households are being told they may be able to delay price increases by purchasing their energy in advance.
This is NOT necessarily the case – so speak to your supplier before charging more than your usual amount.
Can I get a council tax rebate?
To ensure you get your £150 council tax refund straight away, first make sure you have a direct debit payment plan.
Second, you can be eligible for discount.
If you live alone, you get 25% “single person discount”.
You can also get a discount if you’re under 18, an apprentice or student, receive funding from the Education and Skills Funding Agency, are a trainee nurse, or are at high risk.
Receive a 50% discount on your bill if everyone in your household is “disregarded” (in any of the above categories).
The municipal tax is usually settled over ten months, with two free months at the end of the term.
However, if money is tight, why not ask the Council to spread the money over 12 months instead?
If you’re paying £1,200 a year, then over ten months you’re paying £120 a month.
But over 12 you pay £100, saving you £20 a month. That’s a sixth less in real terms every month.
Finally, some of the oldest homes may be in the wrong tax brackets (some of which are higher).
You can object to this and, if you win, you will be refunded a lump sum. But if you lose, be prepared to be asked to pay off your debt.
Will I benefit from Rishi Sunak’s household support fund?
The Budget Support Fund was created last year to help people who are struggling with their bills or who may fall into a “vulnerable” category. This week, Rishi Sunak added an additional £500m to the fundraiser.
You can apply for a subsidy from the fund at your municipal administration. Funds are provided at discretion, so are not guaranteed.
You may be offered coupons in lieu of cash, and some municipalities may not allow you to spend them on certain expenses.
The payments are designed to help those in need cut essential bills like food and energy. Contact your local authority directly to see if you qualify.
https://www.mirror.co.uk/money/your-cost-living-questions-answered-26557504 Cost of living crisis: 10 key questions – from the meter reading to the tax reduction