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Government also plans to cut fuel levy and raise the National Insurance threshold.
Chancellor of the Exchequer, Rishi Sunak, has promised to cut the basic rate of income tax from 20% to 19% by the end of Parliament in 2024. This promise was made in the budget speech today after inflation increased to 6.2% this morning, putting further strain on consumers.
“While we welcome the 1p reduction in the basic rate of income tax, savers still need to take steps to reduce the impact of inflation,” said Shona Lowe, Financial Planning Expert at abrdn.
“Moving cash into arrangements where the returns could be closer to the inflation rate could be an effective way for people to make the most of their savings this year,” she said.
In addition to this promise, Sunak will lift the National Insurance (NI) Threshold by £3,000. This alone could make a typical saving of £330 a year, according to Becky O’Connor, Head of Pensions and Savings at interactive investor.
“As concessions go, raising the National Insurance threshold to £12,570, in line with the personal allowance, is a big one. It will come as a relief to those worried about the impact of the Health and Social Care levy,” she said.
The rise also equates to a £6 billion tax cut for 13 million people, according to Sunak’s speech.
While the cut in fuel levy will come as some relief, it is still a long way from appeasing motorists, said Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown.
“The fuel duty cut is better than a poke in the eye with a sharp stick, but it’s hardly going to be life-changing for hard-pressed motorists,” she said.
“With the cost of unleaded petrol now almost £1.67 a litre on average it’s still going to mean we need to make some horribly difficult decisions about how and where we travel in future. It’s also going to continue inflating the cost of transporting anything to stores, which will gradually feed into the price of everything on the shelves,” Coles explained.
Among the other tax changes was a scrap in Value Added Tax (VAT) for homeowners purchasing energy efficient materials such as solar panels and eco-friendly heat pumps.
The Household Support Fund will also be doubled to £1 billion. This fund is aimed to help households in need by subsidising essential items such as fuel bills and the cost of food.
Many of these decisions have been made in the wake of a growing cost of living crisis.
According to Nationwide’s Spending Report, overall spending in the UK was down 9% in February when compared to January. However, spending on essential items was recorded at a high.
“As inflation impacts how much money we can spend and where we are spending it, we expect overall spend to outstrip last year, particularly in areas where the rising cost of living is likely to be having a big impact, such as utilities, bills and fuel,” said Mark Nalder, Head of Payments at Nationwide.
Nationwide’s Spending Report collects data from nearly 200 million card and direct debit transactions in the UK.
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