David-Prado | iStock | Getty Images
The U.K. government’s latest budget announcement offered little hope for young people who are among those struggling to cope with soaring living costs, financial analysts and advisors have said.
In his Spring Statement, U.K. Finance Minister Rishi Sunak acknowledged that the Russia-Ukraine war was putting more pressure on the cost of living in Britain, with prices already on the rise due to supply chain issues in the wake of the Covid-19 pandemic.
Data released earlier Wednesday showed that U.K. inflation was up 6.2% in February and prices are expected to rise further still. Sunak cited an Office for Budget Responsibility forecast that inflation will average 7.4% this year.
To fight rising prices, Sunak announced an immediate cut to fuel taxes of 5 pence (6 cents) per liter for 12 months, starting from 6 p.m. on Wednesday.
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. He said this was “small change compared to the recent hikes in the cost of fuel” and would barely cover the cost of a coffee.
Jobson also said that Sunak’s announcement of cutting the 5% VAT (sales tax) on the cost of energy efficient equipment for households did nothing to alleviate the “crushing” cost of living pressures on the U.K.’s most vulnerable individuals.
“The policy completely ignores the plight of the almost 40% of U.K. households living in rented accommodation and feeling the full brunt of the hikes to energy bills,” he said.
Energy bills are set to rise drastically in the U.K., with the country’s energy regulator due to raise its cap on prices by over 50% in April.
There had already been some measures announced prior to Wednesday’s statement to try to help with rising living costs.
From April, certain households will receive a payment of £150 as a rebate on their local authority tax payment. 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.
National Insurance hike
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 is a U.K. tax on income that goes toward funding state costs such as the National Health Service.
However, Sunak also went ahead with increasing the rate of National Insurance contributions by 1.25% from April 2022 for one year.
Shaun Moore, tax and financial planning expert at U.K. wealth management 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.
In addition, Sunak announced that the basic rate of income tax would be cut by 1 pence for every pound by 2024.
Hargreaves Lansdown senior personal finance analyst Sarah Coles said that while this offered some light at the end of the tunnel, “there’s an awful lot of tunnel to go through first.”
‘Little reprieve’ for students
Meanwhile, Jobson said Sunak also failed to address recent criticism of the government-funded Kickstart Youth Employment plan.
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.
“For many young people, the plight of securing a job with meaningful career progression remains desperately out of reach after two years of lost opportunities during Covid,” Jobson said.
He also said there was “little reprieve in the Spring Statement to ease the plight of prospective students.”
In February, the U.K. government announced 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.
The government also announced it was planning to extend the repayment term to 40 years from 30 years, with Hooper saying this meant many graduates will be paying a 9% tax for their “entire professional career.”
