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Energy, mortgages, rent, taxes, benefits, pensions, minimum wage key changes 

Martin's Budget Briefing 

Don't think you know it - there's more than meets the eye

On Thursday, Jeremy Hunt produced his first Budget (they called it an Autumn Statement, but it was a Budget). Much of it was political, economic and about public spending.

Yet this was also the most impactful Budget on personal and consumer finance, since, well... the Kwasi Kwarteng disaster one... and as the Chancellor repeatedly told us, he'd had to make "tough decisions" - so it's worth you knowing what's coming, and how to protect yourself.

So let's cut out the politics and focus on the personal finance practicals from the speech, and the things that fell out of examining the detail since.

Listening easier than reading? Watch my 10-min instant-reaction video.

This winter's energy costs are almost double last year's, yet I'm afraid things are likely to get costlier still. While it's not good to hear, preparation and forewarning can help. Here's what's happening... 

• The energy price guarantee has been extended a year. The energy price guarantee started on 1 Oct. It restricts the standing charges and unit rates firms can charge. It was originally due to last two years, then changed to end March 2023, now it's been re-extended to the end of March 2024.
  
  Note for nerds (this is not a must-read, so if you find energy confusing, best ignore): The energy price guarantee actually sits on top of the old three-monthly-changing price cap system. So if the price cap is higher than the guarantee, the state subsidises the difference to keep energy bills lower (yes, staggeringly, current rates are actually subsidised).
  
  
• The price guarantee rate increases 20% on 1 April 2023. The rate is rising by an average 20%, so someone with typical use will pay £3,000/year (currently £2,500/year). 
  
  Note for nerds: If wholesale energy prices (those energy firms pay) drop, so that the underlying price cap is lower than the guarantee, I've had it confirmed the rate will drop to that lower price cap level. That's currently not predicted, but is certainly possible.
  
  I also know many want to know the new standing charges & unit rates. They won't be published until Feb, as they depend on the underlying price cap rates, so I'm afraid my only option's to do it by average % rise, sorry. (All this also means there may be small tweaks to the current guarantee rates from the new 1 Jan cap.)
  
  
• There will NOT be a £400 all-homes cost-of-living payment in winter 23/24. So while a household with typical use currently pays £2,500 a year, and gets £400 off that (so £2,100 in total), next year the rate goes up to £3,000 with no payment. So all-in that's an increase of 43%. And the loss of the £400 will feel even bigger for lower users.Note for nerds: I know you already worked it out, but obvs that £3,000 rate is only if wholesale rates & thus the price cap doesn't drop. 

• There WILL be specific cost of living payments though. Next year there will be £900 for those on benefits (it was £650 this year) and £300 for pensioners and £150 for those on disability benefits, both matching this year. Exact timings and details yet to be confirmed.
  
  
• It's now £200 not £100 for oil/LPG-heated homes THIS WINTER. The £100 payment due for those with oil/LPG heating is being doubled to £200 but still no details on when it'll be paid.
  
  
• Two big consultations could change things. The price guarantee may after April next year become a 'volumetric cap' (ie, cheaper rates up to a certain usage level, higher above). Plus from 2024 there's a consultation on introducing a social tariff (something I've long campaigned for) where vulnerable customers automatically get cheaper rates even without switching.

What should you be doing now to help yourself? There are no meaningfully cheaper tariffs available, so you can't switch and save right now. Yet there are three areas to focus on...

- Easy ways to cut your usage. Lots of help that can easily reduce what you use: first go to our 60+ energy savers checklist for pain-free changes, then the Heat the human guide and finish with Energy mythbusters (eg, is it cheaper to have the heating on low all day?).

- Are you paying the right amount? Use our Direct debit too high? calc.

- Have you got all the help available? Especially important as some on prepay meters haven't claimed their £400 help. Plus if you can't pay, check out Struggling to pay - energy help to see if there are any grants.

This had been the hottest of hot potatoes, so I'm pleased many on the lowest incomes at least got rises to help them try and keep up with inflation. 

• National minimum wages to rise 9.7% on 1 April 2023. Over-23s' will rise to £10.42/hour (from £9.50). Other rates up by similar - for exact details and lots more help (including why 100,000s on min wage should legally be paid more), see our National minimum wage - are you being UNDERPAID? guide.
  
  
• State pension to rise 10.1% on 6 April 2023. That means the full new state pension will be £204/week (from £185), so that's £10,600/year; the old state pension, £156/wk (from £142), so around £8,100/yr. See state pension help for the difference between them.
  
  It's worth noting that means, for many, energy bills alone will be a third of that. Pension credit will also rise 10.1%, so earn under £200/wk if single, URGENTLY check if you're due a pension credit top-up.
  
  
• Most benefits to rise by 10.1% on 1 April 2023 - check if you're due them. See full list of which benefits will & won't rise.
  
  Remember you may be due benefits even if you work...
  
  So a reminder, my rule of thumb is family income under £40,000? Spend 10 mins on a benefits calc. I'm not saying you will get something, just that it's worth checking in case you do.
  
  As Ashik emailed: "After reading one of your universal credit success stories, I thought 'I'm in the same boat, why don't I try it?' I typed my details on the online benefit calculator and I was amazed. I'm now receiving £700 a month."

The big change here is that there is no change! Well, to most income tax and national insurance thresholds anyway - they are frozen (you can see what tax you should pay with our Income Tax Calc).

This is the biggest revenue raiser in the Budget, and it is all about what is called 'fiscal drag'. For that imagine Jeremy Hunt in rouge... it doesn't help the explanation... but it's a fun thing to do.

Fiscal drag means if you don't increase thresholds, instead you freeze them; when average earnings are rising around 6% a year and inflation is 11%, people pay more tax. An example should help...

Imagine Pat Timeworker earns £12,500/yr... She doesn't pay any tax on it, because of the personal allowance: the amount you can earn income tax-free is currently £12,570/yr. Next year... Pat gets a pay rise of around 5% taking her to £13,100/yr. Yet with 11% inflation, her spending power is actually less than it was the year before. Now for the fiscal drag. As the personal allowance is frozen at £12,570/yr, and she now earns £530 more than that, she'll pay 20% tax on that bit - taking a further £106 and giving it to the tax office. This effect works for everyone whose income increases, as if thresholds don't rise, you pay a bigger proportion of your income in tax.

PS: The Scottish Parliament has some tax-varying powers, and it hasn't yet announced its new tax rates. So this is for Eng, Wales & NI.

There was one income tax change though. From next April, 45% tax will be paid on all income above £125,140 rather than above the current £150,000 - bringing more people into the very top band. And there were a couple of other tax changes starting next year.

- Capital gains tax allowance cut. The amount of profits you can earn per tax year before paying tax on it will be cut from £12,300 this year to £6,000 from April 2023, and £3,000 from April 2024.

- Dividends allowance cut. The amount you can earn in dividends per tax year before paying tax on it will be cut from £2,000 this year to £1,000 from April 2023, and £500 from April 2024.

There was not much said about this in the Budget speech, but there were a few more things in the background documents worth noting.

PS: If you're looking at changing mortgages now, see our Mortgage Best Buys comparison and Remortgage help booklet (downloads PDF).

• Live in social housing? (Eng) rent rises will be capped at 7% from April. This applies to almost all council and housing association properties in England. There is always a cap in place - it was due to be 11% next tax year, but the Chancellor cut it to 7%, which means rents can't go up as much (the cap for this tax year is 4.1%). In Wales next year's cap will be 6.5%, Scot & NI haven't confirmed theirs yet.
  
  
• 'Support for mortgage interest' to be made easier from spring 2023. If you lost your job, currently after 9 months you can get some money to help cover your mortgage interest. From spring 2023 (nothing more accurate than that I'm afraid), you'll only need to be out of work for 3 months, and for the first time will not be excluded if you have a little income. Full info in mortgage support changes.

On the mortgage front, I am concerned spring could be a perfect storm - energy bills up, inflation continuing to rise and interest rates peaking.

I had a one-on-one with the Chancellor early last week, and this was one of the things discussed. On mortgages I suggested that some lender and regulatory changes could make things easier (eg, softening remortgaging affordability checks, making it easier to change mortgage term, take payment holidays, temporarily switch to interest-only).

And of course this impacts renters too, as many rents are impacted by the mortgage costs of landlords.

On the back of that, he wants to get me, him and others together with lenders soon, to discuss this in more detail. Watch this space.