In the past month, a £20 a week Universal Credit lifeline has been revoked, furlough has been terminated and an energy crisis has unravelled – with household bills set to rise by hundreds over the next year.
At the same time, the Chancellor has pushed through the biggest rise in personal taxes in two decades – a 1.25% National Insurance hike that will flip into a social care levy next April to raise £12billion more for care and the NHS.
Sunak says the economy is thriving – with 1.2million job vacancies and the number of people in work now back to pre-Covid levels – but households are facing a cost of living crisis and the Bank of England has warned inflation could top 5% by Christmas.
The Tories have already broken their promise to raise taxes – meaning there is no telling how far the Chancellor will go this month when he delivers his latest Autumn Budget to the nation.
The income tax personal allowance has already been frozen at £12,570 and the higher rate threshold at £50,270 from next April until 2026.
With the national debt now at its highest since 1963, we take a look at what could be announced on Wednesday, October 27.
What are you hoping the Chancellor will announce? Let us know in the comments below
The Chancellor is being pressed to increase benefits by more than £700million a year to cushion the blow of withdrawing the £20-a-week Universal Credit uplift. Any possibility of this will be revealed in the Budget.
It comes as charities and campaigners have warned this month’s cut will trigger a record high in families using food banks this winter.
The Chancellor ended the £5billion a year Covid support on October 6 but introduced a council fund to help those struggling the most instead.
Richard Lane, StepChange director of external affairs, told The Mirror: “The recent creation of a £500m Household Support Fund will help people to deal with one-off emergencies. But when faced with today’s cut, along with the end of furlough, rocketing energy prices and rising inflation, millions will face a daily battle just to get by.
“We agree with the Chancellor when he says that everyone should be able to makes ends meet, but this will be immeasurably more difficult for households with £1,040 less to live on. The Government has the opportunity to set this right by assessing the impact of the cut in the coming weeks and reversing it before the damage becomes too deep.”
VAT, alcohol and cigarettes taxes
Budget day is typically the day when cigarette prices go up – usually at around 6pm. This is one tax that tends to rise every year. It serves a dual purpose – to encourage people to quit and to raise cash.
The last rise in November 2020 put 22p on a pack of 20 cigarettes and 65p on a 30g pack of hand-rolling tobacco. This year, we’re expecting a bigger rise than usual as it rises with inflation – which is at a record 3.1%.
The Chancellor is also understood to be planning an overhaul of alcohol duty – a move which could slash the prices of products, such as beer and wine, in a small win for the public.
Under current rules, there are 15 different bands of taxation across four product types: beer, cider, wine and spirits.
However the system has been described as complicated and outdated and there are now plans to sharpen it up.
For example, beer carrying more than 7.5% alcohol by volume (ABV) is currently taxed at just under 25p per litre.
However, non-fizzy cider that contains the exact same amount of alcohol is taxed at 61p, while sparkling cider is taxed at £2.88 if it contains more than 5.5% ABV but less than 8.5% ABV.
Premiums on sparkling wine, which are currently between £2.88 and £3.81 could be completely scrapped and brought in line with wine.
Should this happen, consumers could expect to save 83p per bottle of fizz as the tax would drop to just under £2.98 per litre.
Elsewhere, a cut in VAT for hospitality and tourism businesses ended last month. It saw the tax temporarily reduced from 20% to 5%.
With much of the hospitality industry now operating at full capacity, it is unlikely that this Covid cut will be extended, meaning pubs and restaurants will now continue on the normal tax rate.
Combined with supply shortages and pay rises, that means struggling businesses who have passed this relief onto consumers will also most likely put their prices back up.
The Treasury has confirmed a rise in the National Living Wage from next April – with hourly pay for those over 23 to rise from £8.91 to £9.50 an hour. The 59p boost which means a full-time worker on the National Living Wage will see a pay rise averaging at £1,000 a year.
The National Living Wage was introduced in 2016 and sets the minimum hourly pay a person over the age of 23 can earn when working.
Rishi Sunak is also set to announce a wage rise for young people under the age of 23. For those aged 21-22 the National Minimum Wage rate increases to £9.18 an hour, up from £8.36 – a 82p increase.
The minimum hourly wage for an apprentice will also see a boost next year, with an 18 year old apprentice in an industry like construction seeing their minimum hourly pay increase by nearly 12%, going from £4.30 to £4.81 an hour.
Is the increase enough? Let us know your thoughts in the comments section below
A £500million fund for childcare
The Chancellor has already confirmed a £500million fund for children and families will open up this year.
This will include £82million to set up family hubs in 75 new council areas as well as a ‘one-stop-shop’ to deliver parenting programmes (£50m), breastfeeding advice (£50m) and mental health support (£100m) to families in need.
Dozens of childcare providers have gone bankrupt since the government introduced a free childcare scheme in 2016. The hourly pay per child has been frozen ever since, meaning nurseries have had to make up the shortfall – despite having no income.
Plane tickets to Australia, South Africa and Japan will become more expensive if an Air Passenger Duty rise goes ahead. This is the tax that passengers pay on flights – it is usually included in the ticket price.
The Chancellor is expected to confirm previously-mooted plans to reform the tax, levying a higher rate on long-haul flights.
Currently APD is charged in two bands – journeys under and over 2,000 miles. A new third band could cover distances over 6,000 miles.
The government has already confirmed that the state pension ‘triple lock’ will be suspended for a year due to a skewed increase in average earnings during Covid.
The triple lock guarantees that the state pension will increase every year by inflation, average wage earnings growth, or 2.5% (whichever is highest).
Earlier this year the government introduced a £3.5billion fund to pay for cladding removal or remediation in buildings over 18 metres, or six storeys, high in England.
There are now rumours that Rishi Sunak has plans for a residential property developer tax to pay for this removal of flammable cladding from high-rise buildings.
The tax will be paid by housebuilders with profits of more than £25million. It is expected to raise at least £2billion over the next decade.
What about climate change?
The Budget will take place shortly before the international climate summit COP26.
In the March 2021 Budget, the Chancellor announced NS&I green savings bonds. These have now launched, but the interest rates are poor at just 0.65% over three years. The accounts are aimed at those who are willing to sacrifice interest to go green – a choice savers should not have to make.
This week the Prime Minister also unveiled a replacement of the Green Homes Grant to make homes more eco-friendly.
New £5,000 boiler grants will pay households who switch to heat pumps, effectively reducing the price to make them more appealing to homeowners.
Right now, a heat pump can set you back up to £14,000. However, while 22million homes will need to switch, just 90,000 will get the grant initially.
Energy price reform
Soaring energy prices are the biggest concern facing most households this winter – and are rapidly becoming one of the biggest problems the government needs to tackle too.
Rishi Sunak could slash VAT on household energy bills to help struggling families through the winter cost of living crisis.
Or he could extend the Warm Home Discount scheme, to allow more people to benefit, or increase it from its current £140.
The winter fuel payment could also be increased for pensioners who will be among the hardest hit this winter. The amount has been frozen for years, but there is precedent as the government previously introduced a temporary uplift of £50 in 2009-11, although this was under Labour.
Of course, any such payouts would come at a cost – estimated at £2billion for the Treasury.
All eyes are on how much funding the government will give local councils in the next 12 months.
Local councils are struggling to foot the bill for some of the new social care plans announced by the government earlier this year.
Put simply, if councils don’t get the funding from the government, they’ll have to go to the public and hike council tax.
The IFS has already predicted a potential increase of around £240 to average bills in the next few years if more central government funding isn’t given, and even its best-case scenario sees an extra £160 added to bills in the next few years.
The chancellor has already frozen the income tax personal allowance at £12,570 and the higher rate threshold at £50,270 from next April until 2026.
The Chancellor dodged calls to increase inheritance tax in the March budget but tax experts say it could make the cut this time around.
Changing inheritance rules would boost the Treasury’s coffers without changing working tax rates.