How to keep costs down as prices continue to rise
As household budgets come under more pressure in the coming weeks, learn how you can prepare your finances.
The cost of living is rising faster than wages in the UK. In April, prices will increase for household energy and council tax. This year's increases are likely to be painful for already squeezed families.
Personal Allowance
The personal allowance – the amount you can earn before you start paying income tax – will be frozen (at £12,570) across the UK until April 2028. The same goes for the basic-rate tax band in England, Wales and Northern Ireland. This means that you will continue to pay 20% on income between £12,571 and £50,270, and 40% on income above that. In Scotland, however, the starter, basic and intermediate-rate tax bands will remain unchanged.
You may not notice it, but if your salary increases and tax thresholds remain the same, you'll pay more tax on your income.
The threshold at which you start paying additional-rate tax (known as ‘top rate’ in Scotland) will reduce from £150,000 to £125,140 from April. It’s estimated that around 250,000 taxpayers will be pushed into this top band as a result, meaning they will pay tax at 45% on any income above the new limit (47% in Scotland). From April, Scottish higher-rate taxpayers (those earning between £43,663 and £125,140) will pay tax at 42%, up from 41%.
The government is set to cut the tax-free dividend allowance from £2,000 to £1,000 in April. The allowance will then fall again to £500 in 2024.
The government offers every UK resident a tax-free savings allowance of £20,000 per year. You can invest the full amount in an Isa and make the most of this allowance by holding investments that are already paying you well until you can put them into an Isa – a process known as Bed and Isa.
When you sell shares or other assets that you have held for more than 12 months, you will usually have to pay capital gains tax. However, if you have losses from the same or a previous tax year that you can offset against your gains, you may be able to reduce your bill.
If you are selling an asset and your spouse has not used up his or her capital gains tax allowance or is in a lower tax band than you, you may be able to reduce the amount of capital gains tax you pay by transferring assets to him or her before selling.
Council Tax
From April 2023, local authorities in England will be allowed to increase council tax by up to 5% without holding a referendum. Previously, they could only raise it to a maximum of 2.99%.
The majority of councils are expected to raise rates by 5%, but those with particularly stretched finances have been given government permission to increase rates by more than the new limit. For example, Croydon is raising bills by 15%.
Council tax is set by local authorities in England and Wales. A 5% increase could see average annual band D council tax rising by nearly £100 (from £1,966 to £2,064). The same goes for domestic rates (equivalent to council tax) in Northern Ireland.
Discounts on council tax bills are available for certain groups of people. You may qualify for a discount if you live alone or with others who are disregarded for council tax purposes, such as students or someone with severe mental impairment. You can also apply for a band reduction if your home is adapted for a disabled person.
Council tax bands are based on the value of your home in 1991 (or 2003 in Wales). If you think the original valuation was wrong, or if changes have been made to the property's use or size that may alter the band it should sit in, you can appeal for it to be reassessed.
Energy Price Guarantee
The Energy Price Guarantee, which limits the average annual household bill to £3,000, was due to rise to £4,000 in April 2023. However, this increase will now be postponed for five years.
The government's Energy Bill Support Scheme, which has seen most households receive an additional £67 a month towards their energy bills, will end on 31 March. In real terms, most householders will still find April's monthly bill more expensive than they have been recently. Only the most vulnerable households--those on benefits or pensioners--will now receive government support from April.
To ensure that you're getting the best deal, remember that your bill will still depend on how much energy you use.
While it is possible to switch to a fixed tariff, most suppliers do not offer this option. Therefore, reducing your energy usage is the most effective way to trim your bills.
Here are some ways to reduce your energy costs:
Turning lights off when not in use, £25 a year saved.
Switching off appliances on standby, £65 a year saved.
Insulating your hot-water cylinder, £70 a year saved.
Draft-proofing windows and doors, £60 a year saved
Broadband
Broadband providers typically raise prices each year in line with inflation, plus an additional 3-3.9%. This year's hikes are particularly steep because many providers allow for price increases in their terms of service. Customers within their minimum contract period have little choice but to accept them.
The largest broadband provider BT Group is increasing its prices by 14% from 31 March, adding an extra £66 to the average annual bill.
Virgin customers will have to pay more for their broadband and mobile packages, from either 1 April or 1 May, depending on the contract. Unlike other providers, Virgin's contracts do not currently factor in rises, so customers can switch without paying exit fees. However, this will no longer be the case in April 2024.
Mobile phone providers also increased their prices. O2 and Virgin Mobile customers will face the highest increases, up to 17.3%. Meanwhile, EE, Three and Vodafone are increasing prices by 14.4% (CPI published in January, plus 3.9%).
Sky Mobile, the only mobile provider not raising its prices, offers rolling Sim-only contracts.
As a consumer, you have the right to shop around for the best deal on a service. If you're satisfied with your current provider but want a better price or faster broadband speed, it pays to haggle.
If you have a contract with your provider, you'll need to pay an exit fee to leave. However, some providers offer support if you're in hardship. Avoid taking out a 24- or 36-month contract, even if the original cost seems attractive.
