Minimum wage increase announced by Chancellor
The Autumn 2021 budget delivered earlier this week by Chancellor, Rishi Sunak, brought some good news for those on the minimum wage. Mr Sunak announced an increase in the national minimum wage, which will subsequently impact pensions savings as it will result in increased contributions.
News of the minimum wage increase became known before Wednesday, but the Chancellor confirmed the increase in his speech. From April 2022, the national minimum wage will increase to £9.50, which could mean an extra £1,000 a year for someone who works full time.
*Starling Bank will not charge you withdrawal or currency conversion fees, but some ATMs may charge a fee.
**On top of this amount, some ATMs may charge a fee
On the side of the working people
During his speech, the Chancellor said the government was keen to ensure people knew that they were better off working and that it was working toward ending low pay.
Mr Sunak said, “This is a government that is on the side of working people. This wage boost ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament.”
Recommendations over the national minimum wage are made by an independent body, the Low Pay Commission, then accepted or rejected by the government. The latest suggested increase was accepted, and this has now been officially announced by the Chancellor.
There are also reports that Mr Sunak is keen to push the national minimum wage to £10 per hour by the time the next General Election rolls around in 2024.
Universal Credit taper rate cut announced in budget
Another major takeaway from this week's budget was the announcement that the Universal Credit taper rate will be cut. This comes after intense criticism over the government cutting the £20 per week uplift introduced last year due to the impact of the Covid-19 pandemic.
The taper rate will be cut from 63% to 55%, meaning those receiving this benefit will take home more money. The taper rate refers to the amount of Universal Credit lost due to claimants working and earning more than the work allowance, which is a specified threshold.
A cut of 8% in the taper rate
The Chancellor’s announcement that the taper rate on Universal Credit will be cut by 8% will be welcomed by many. The current taper rate sees workers lose 63p in Universal Credit for every pound earned above the specified work allowance threshold. This would equate to a loss of £63 per month for someone making £100 per month more than the work allowance rate.
The reduction will see this drop to workers losing 55p for every pound earned above the work allowance threshold. This will enable many of those who are working and claiming Universal Credit to take home more money.
During his announcement, Mr Sunak said that the changes would come in over the next few weeks and would definitely be in place by the start of December. He added that it meant a single mother with two children earning the national minimum wage could benefit from an additional £1,200 per year due to the changes.
The temporary uplift of £20 a week to Universal Credit claimants came to an end earlier this month, and the government found itself under intense fire as a result. Many claimed they could no longer afford to live given the sharp rise in living costs since the uplift was introduced. Campaigners urged the government to rethink the cancellation of the uplift to no avail.
The move to cut the Universal Credit taper rate will come as a relief to many claimants who will see the amount of money they take home increase. For many, the changes will plug the gap left by the temporary uplift being removed. In addition, the amount that some Universal Credit claimants will be able to earn before being hit by cuts to their claim is to be increased by £500 per year.
According to Karl Handscomb, a senior economist at the Resolution Foundation, the move could prove costly to the government. He said that the 8% cut in the taper rate could cost the government between £2.4 and £3.2 billion.
It has also been pointed out that the taper rate changes won't help those who claim Universal Credit and are not working. These people have also had the £20 per week uplift removed but will get nothing to replace it.
Social Market Foundation Director, James Kirkup, said, “This welcome change won’t help non-working claimants who have seen the £20 weekly Covid uplift withdrawn – and now face a bleak winter of rising living costs.”
Low earners to receive pension boost to rectify unfair anomaly
Mr Sunak announced that an unfair anomaly relating to the pensions of many low earners will be rectified with a pensions top-up from 2024/2025. The anomaly occurs based on the scheme used to administer the pension. Those who use the 'relief at source' method receive pensions tax relief. In contrast, those paid via the 'net payment arrangement' or NPA receive no pensions tax relief.
The government plans to address this by allowing low earners whose employers use the NPA scheme to apply for a top-up of £53 per year to cover the tax relief not received. This will be put into place from 2024/2025. He said it was unfair that low-earning non-taxpayers were penalised based on how their pension scheme was administered and that this move should help rectify it.
A lengthy delay for those affected
While the move has been welcomed, there are concerns over the time taken to put it into place and the subsequent implementation timeline.
The former Pensions Minister, Steve Webb, described the move as ‘messy, belated, and ineffective’. He said this anomaly had been an issue for the past ten years, so those affected had already missed out hugely. Mr Webb said the fact that they had to now wait another three years needed to be questioned.
In addition, Mr Webb said that because those affected had to actively apply for the top-up, many may fail to do this, potentially affecting take-up levels.
Now a partner at LCP, the former Pensions Minister said, “The proposed fix for low-paid workers is messy, belated and may well be ineffective. The problem of low-paid workers missing out on tax relief has been going on for a decade and will still go unfixed for another three years. This is yet another sticking-plaster response to a problem with the pension tax relief system which needs a systematic overhaul.”
Sunak confirms state pension increase from April 2022
While news of the proposed state pension increase broke last week, it was confirmed on Wednesday during the Chancellor's Autumn Budget speech. Documents were published along with the budget confirming the traditional triple-lock system would not be used for this year and that the state pension will increase by 3.1% for the 2022/2023 tax year.
There has been some uproar over the government's decision to suspend the triple lock system, which could have seen pensioners receiving a boost of over 8% next year. Instead, the increase of just 3.1% aligned with soaring living costs means many pensioners fear they're about to be significantly worse off.
Small weekly increase
The confirmed increase means pensioners will receive only a slight weekly raise on their state pensions. For those who qualified for the state pension after April 2016 and receiving the full single-tier pension, the increase will take the weekly payment from £179.60 to £185.15. Those on the basic state pension who retired before April 2016 will see their weekly payments increase from £137.60 to £141.85.
On an annual basis, this equates to an increase of £288.60 for the single-tier pension and £221 for the basic state pension. Many are concerned this will not cover the rising cost of living, and some have branded the temporary suspension of the triple lock as unfair.
Had the triple lock system not been suspended, the increase for next year would have been 8.3%. This would have resulted in the basic state pension increasing to £149 per week and the single-tier pension rising to £194.50 per week.
In addition to confirming the state pension increase, it was also revealed that a consultation is to take place on reforms of the charge cap on defined contribution auto-enrolment schemes. This is currently set at 0.75%, but the Chancellor is keen to make it easier for billions in pensions savings to be invested in long-term schemes.
Those managing these defined contribution schemes have steered clear of certain investment projects in the past for fear of breaching the current cap. However, reforms to the charge cap could help change this situation.
Chancellor reveals fuel duty increases have been axed
Another of the big stories from the Autumn Budget is that the planned fuel duty increases have been cancelled. This comes as petrol costs soar to record levels, with the cost of filling up rocketing to an average of 142.94 pence per litre. Coupled with other driving costs such as insurance, this has put motorists under increased strain.
The Chancellor has now confirmed that fuel duty will remain at its current level, 57.95p per litre, marking the twelfth year it has been frozen at this level. Prices hit record levels last weekend, with some describing it as a ‘truly dark day for drivers.’
Breaking fuel price records
The previous record high for petrol prices was set in April 2012, when the average cost of fuel rose to 142.48p per litre. In addition to petrol prices increasing, diesel prices also shot up to 146.89p per litre, a sharp increase from 125p per litre before the pandemic.
Speaking to MPs, Mr Sunak said, “With fuel prices at the highest level in eight years, I’m not prepared to add to the squeeze on families and small businesses. So, I can confirm today the planned rise in fuel duty will be cancelled. That’s a saving over the next five years of nearly £8 billion.”
He added, “Compared to pre-2010 plans, today’s freeze means the average tank of fuel will cost around £15 less per car, £30 less for vans, £130 less for HGVs. After 12 consecutive years of frozen rates, the average car driver will now save a total of £1,900.”
According to reports, the Chancellor had been planning to hike fuel duty by 2.84 pence per litre. However, in light of the current situation with petrol and diesel prices, he has decided to freeze fuel duty for another year.