Quite apart from the human cost, covid has cost us all a great deal. In the first year of the pandemic, from April 2020 to 2021, the government borrowed £299bn, the highest figure since records began in 1946. Another £200bn will be needed this year, and as taxpayers, we will be paying for it all.
But the covid costs don’t stop there. The low interest rates vital to restart the economy are also helping to restart inflation.
At Continuum we are looking at what the combination of higher tax and higher inflation and what it could mean for your family budget.
Do you have a financial hangover from Covid?
Inflation is back
Inflation is a measure of rising prices and affects what you can buy for your money. Covid and lockdown reduced economic activity, eliminating the inflationary pressures that were becoming a worry at the beginning of 2020. The cost of some goods actually fell early in the pandemic in response to a collapse in demand.
Now, as the economy starts to recover, pent-up demand and supply chain bottlenecks are already creating severe price pressures. There are already shortages in some key sectors such as semiconductors. Scarcity inevitably means price increases.
It looks as though the process of inflation has already begun, When May inflation data was released the figures were higher than expected, passing the 2% mark. Now it is forecast to potentially increase to over 5% by 2022, well above the Bank of England’s 2% target.
The typical household spent just over £20,000 in 2019, the last pre-Covid year, according to the Office for National Statistics. Inflation rises would push up the bill for the those same goods and services substantially.
National insurance is going up
National insurance contributions (NICs) paid by both employed and self-employed workers will rise by 1.25% in a bid to help fund health and social care costs. From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips. It will be paid by all working adults, including workers over the state pension age – unlike other NICs.
Downing Street says this means an employed basic rate taxpayer earning £24,100 a year would contribute £180, while a higher rate taxpayer earning the median higher rate taxpayer’s income of £67,100/year would pay £715.
Tax is going up – stealthily
The Chancellor’s budget back on 3rd March seemed innocuous enough. There were minor increases to the £12,500 and £50,000 income tax thresholds to £12,570 and £50,270 respectively.
These thresholds – which determine how much a person can earn before paying income tax, and who will pay at the higher 40% rate – usually rise with inflation.
So, what about your family budget?
All these increases add up to increased pressure on your family budget with higher prices and more taxes. Wages may be on the up – but probably not by enough to compensate for the added costs and tax burdens.
However, with some expert help you may be able to make your money work harder for you and reduce the amount the taxman can take.
Your financial plans may need a fresh look, and you may need an expert to help you. At Continuum we are ready to provide all the help you need.
Start cutting your tax bill now
To find out more about how you can reduce your tax bill with a Continuum expert.
At Continuum our service is personal. We work with you to develop a wealth management scheme which could help you build your wealth, make better use of your resources and reduce the share the taxman wants to take.