Planning & Budgeting

Prime Minister breaks manifesto promise with national insurance hike: This week’s finance news

This week’s finance news brought more information about the controversial suspension of the pensions triple lock, as well as the confirmation of a national insurance hike. Also, read the latest on potential interest rate hikes, increases from the big six energy giants, and much more.

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Prime Minister breaks manifesto promise with national insurance hike: This week’s finance news
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Boris Johnson has now confirmed that there will be a hike in national insurance across the UK. The Prime Minister sparked controversy after breaking a manifesto promise to reform social care without increasing income tax, VAT, or national insurance contributions.

The PM made a wide range of promises back in the Tories’ 2019 manifesto. These included people not having to sell their homes to access the care they needed, no hikes in national insurance and other taxes, and promises to reform social care with plans already in place. However, his latest announcement will hit many financially and leave others without a care solution.

Only a percentage of the money will go toward social care reforms

The PM sparked further controversy after it was revealed that only a fraction of the money raised from the hikes would actually go toward social care reforms. The remainder will go toward funding backlogs stemming from the global pandemic. Labour slated the plans, accusing the PM of rushing them through and bouncing MPs into backing the plan, which was indeed voted for by parliament.

The move will see national insurance contributions increase by 1.25% for employers and employees across the nation. The rise will take place in April next year with the aim of raising £12 billion annually for health and care.

The national insurance hike will hit anyone earning over £9,568 per year. So, for example, someone who earns £24,100 will pay an additional £180 per year in national insurance.

In the meantime, Mr. Johnson has tried to defend his decision after being accused of breaking his manifesto promises. He said, “I accept this breaks a manifesto commitment which is not something I do lightly, but a global pandemic was in no one’s manifesto.”

Bank of England confirms interest rates could go up

Officials from the Bank of England have indicated that there is a good chance that interest rate rises could be on the horizon. Policymakers suggested that the likelihood of interest rate increases in the near future was most likely far higher than many people expected. 

At present, the rate of interest stands at just 0.1%. However, this could change far quicker than many people expect based on indications from policymakers.

This news came after Monetary Policy Committee members and BoE policymakers were pushed for answers by the Treasury Committee this week. Among the things they were asked about was interest rates, and it was revealed that there was an even divide among the team. According to reports, four of the eight members thought that the minimum conditions for interest rate increases had been met last month. However, the remaining four believed that the economy was still too weak.

Governor believes interest rates could be hiked

When asked by the Treasury Committee about interest rate increases, BoE Governor Andrew Bailey said he believed that minimum conditions had been met to increase interest rates.

When asked where he stood on an interest rate increase, and he said, "I think we can do that. So, my view was that the guidance had been met."

In addition, the Deputy Governor for Markets and Banking at the BoE, Dave Ramsden, stated, “I gave a speech in July where I sort of flagged that I thought the guidance was close to being met. And by the time we got to the August round, my view also was that the guidance, which [as you know] was significant progress on eliminating spare capacity and sustainable return of inflation to target, had been met. But those were always necessary rather than sufficient conditions for tightening.”

Government confirms suspension of pensions triple lock next year

It has been confirmed by the work and pensions secretary that there will be a temporary suspension of the pensions triple lock system next year. Therese Coffey told MPs that the move was intended to prevent a hike in payments of 8%. Instead, April 2022’s increase in the state pension will be based on inflation or 2.5%, whichever is the highest.

Under the triple lock system, state pensions increase by the inflation rate, 2.5%, or earnings, depending on which of the three is the highest. However, with wages increasing more than 8% in a year, Coffey said it would be unfair to stick with the triple lock system, hence the decision to suspend it temporarily. The move does not come as a huge surprise, as there have been strong hints that changes would be made.

A statistical anomaly

The work and pensions secretary went on to say that the situation was a difficult one for making a decision because it was not a real-life one. This is because of the pandemic artificially boosting wage inflation due to vast numbers of people coming off furlough schemes and going back to work. Coffey described this as a ’statistical anomaly’ and added that the decision to suspend the triple lock system was ’fair and reasonable.

She confirmed the suspension is temporary and that the triple lock system will be put back into place the following year. Coffey stated that the triple lock would then be implemented throughout the remainder of this parliament.

The announcement of the suspension of the pensions triple lock system came at an awkward time. The Prime Minister had also announced the national insurance hike, and the two announcements meant two manifesto promises were broken in rapid succession.

Households urged to compare energy tariffs as energy giants hike prices

Households across the UK are being urged to shop around and compare deals to get the best energy deals on the back of price hikes from most of the ’big six’ energy giants. Five of the six main energy suppliers have already increased their tariffs because of a vast increase in the price cap set by the energy regulator, Ofgem. 

 With colder weather fast approaching, the price hikes could hit finances hard for many households, and more could be pushed into fuel poverty as a result. The price cap for energy is set to increase by £139 to £1,277 from the start of October. This will take it to the highest level since it was first launched.

Five energy giants increased prices to the hilt

While the energy price cap increase does not officially come in until October, five of the energy giants have already increased their prices to the ceiling limit. This includes British Gas, EDF, SSE, Scottish Power, and E. On.

This has raised concerns that vast numbers of households could find themselves struggling financially just as the colder weather comes around. More than 11 million households face crippling energy bill increases due to this, with hikes of 12.25%.

The purpose of the price cap is to help provide protection for customers that have not switched to another supplier. It aims to ensure they still pay a fair price for their energy usage by capping the most expensive tariffs. However, households are now being advised to start shopping around to try and find better deals.

There is a six-monthly review of the energy price cap, with the last in April. The cap also increased in April, when energy giants increased their prices to the maximum allowed. 

One industry official, Gareth Kloet from GoCompare, said that although some of the major suppliers had already increased their tariffs, many had not done so yet. He said, “There are still a number of providers such as The People’s Energy, Pure Planet, and PFP Energy who have yet to increase their prices.”

Warning issued over scam as pensioner almost loses £4,000

Brits are being warned about a serious and very sophisticated scam after a pensioner was nearly cheated out of £4,000. The unnamed pensioner, aged 86, found himself on the receiving end of a sophisticated scam. Other Brits are now being urged to exercise caution.

Over recent years, scams have become an increasing problem, and the pandemic has seen the number of scams rocket. Many scammers target vulnerable people like pensioners as they believe they will not be savvy enough to realise they are being scammed until it is too late.

Scammers claiming to be from HMRC

Scammers often claim to be from official agencies such as Her Majesty’s Revenue & Customs. The pensioner received a call from someone claiming to be from HRMC and was told he had a debt that needed to be repaid to the tax office.

He was told to make a payment of £4,000 and advised that a taxi would be sent to his home to take him to his local bank and sort out the money. The scammers also advised him to take his passport along as a form of ID so he could take the money out.

A car actually turned up for the man, who had been told that someone from HMRC would meet him at the bank to take the money and settle the debt. Fortunately, a relative found out what was going on and rushed to stop the pensioner from getting into the car.

In a post on Twitter, the Metropolitan Police stated, “These scams are real and happening every week. If you have fallen victim to these criminals, please report it.”

Nearly 50% of retirees do not have adequate savings

According to a recent Hargreaves Lansdown survey, close to half of retirees in Britain do not have sufficient savings available. The survey was carried out by Focaldata and involved polling over 10,000 adults. The results showed that 46% of those approaching retirement had not saved up enough rainy-day or emergency money.

The data also showed that retirees who have to rent a home tend to struggle far more when saving money than those who have a mortgage. Worryingly, the survey results also showed that 21% of retirees thought they had plenty of money put aside when, in fact, the amount they had was not adequate.

Failing to realise how much they need

Sarah Coles, a personal finance analyst for Hargreaves Lansdown, said many older people were unaware of how much money they needed to have a financial safety net in retirement.

She said, “It’s easy to see why they’re more confident about their resilience than their working-age counterparts. They’re more likely to have money set aside for emergencies, and they’re less likely to worry about a lack of savings. Many have also fared better financially during the crisis, especially those on a guaranteed income.”

Coles added, “However, this doesn’t mean they’re in the clear, because many of them don’t realise quite how much of a safety net they need at this stage in life, so almost half don’t have enough set aside for emergencies.” 

According to the company, people generally need to have 3-6 months’ worth of essential expenses saved up in case of financial issues. However, this increases dramatically to 1-3 years’ worth of essential expenses for retirees.

Image Credit: Mathew Browne at Unsplash

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