Triple lock, ISAs, inflation: the money lessons that 2023 taught us

There have been plenty of lessons to learn from the chaotic 12 months of 2023.

While it hasn’t quite been as chaotic as 2022, the last year has certainly been a significant one for our money.

And amid all of that, there have been some important lessons we can take towards our money management.

The triple lock is untouchable (for now)

The State Pension is in line for a second straight enormous hike from April 2024. Hot on the heels of a double digit increase this year, it will jump by 8.5% next year following the high rate of earnings growth.

There had been speculation that the Government could opt to use a lower earnings figure and save a few quid, but that came to nothing, most likely given the general election on the horizon.

For all of the remaining questions around intergenerational fairness and the sustainability of the triple lock, political pragmatism continues to be the first priority. Good news if you happen to be a pensioner.

Savers need to worry about more than interest rates

On the face of it, it’s been a great 12 months for savers. With Base Rate continuing to rise, banks and building societies have been falling over themselves to offer eye-catching rates, certainly compared to the mediocre returns that have been the norm in recent years.

However, in real terms even those with the absolute highest rates would have seen their money lose value because of the persistently high rate of inflation. It’s only in the last couple of months that we have seen inflation drop enough that it can be beaten by inflation.

It’s a useful reminder that rate only tells part of the story when working out what to do with your cash.

The ISA is the priority

One of the byproducts of the dreadful rates on savings accounts in years gone by has been that ISAs have lost their allure. 

Most of us benefit from some level of personal savings allowance, meaning we can earn up to £1,000 a year in interest from our savings before having to hand any of that interest over to the taxman.

And when rates were low, hitting that level of interest returns was a tough ask. However, with rates rising so sharply, it’s become a much bigger concern. Analysis from AJ Bell suggested that around 2.73 million savers will pay tax on their savings interest in 2023-24, compared with around 800,000 just a couple of years ago.

Of course, the way around this is to make use of your ISA allowance. The money kept within an ISA wrapper is safe from the taxman, so your returns end up entirely in your pocket and not heading to HMRC. As a result prioritising your saving within an ISA rather than other accounts is more important than ever.

Motorists are still getting milked

If you happen to drive a car, then you are viewed as something of a cash machine by fuel courts, a fact that has been made clear this year.

While the price of a litre of petrol or diesel is largely the same today as it was a year ago, that doesn’t tell the whole story. Instead fuel retailers have been accused of being much too quick in hiking prices when wholesale costs increase, and then taking too long in cutting prices when those wholesale costs drop.

Analysis by the RAC suggests that drivers are paying around 10p per litre more on petrol and 5p per litre on diesel currently, precisely because of this approach. And this is when we are supposed to be benefiting from a 5p per litre fuel duty cut as well.

Even outside of the fuel courts, drivers are suffering from seriously big costs, with car insurance rocketing by 29% over the last year to a new record high.

Falling inflation isn’t enough

One of the biggest factors in the money worries faced by many of us over the last couple of years has been the rate of inflation. Prices have been rising persistently, and at a scarily high rate, putting our household budgets under great pressure.

Again, it would appear that things are improving, with inflation dropping of late. The consumer price index measurement in the 12 months to October stood at 4.6%, down from 6.7% the month before.

However, the danger has already been done. Inflation may be decreasing, but that just means prices are rising more slowly, not becoming cheaper.

Food is a great example here ‒ data from the Office for National Statistics (ONS) suggests that food prices are on average 30% higher than two years ago, a mind-boggling increase for households to have to deal with.

Just the fact that inflation has fallen does not mean that our money is in a stronger position.

Loyalty can pay

On the subject of food, it’s worth reflecting on the trend around loyalty schemes seen this year. One way that a host of supermarkets have attempted to win our custom has been through revamping their loyalty schemes, particularly with the introduction of lower prices for members.

Those lower prices make a difference too. Price comparison studies by The Grocer have frequently found that the likes of Tesco and Sainsbury’s move from the middle of the pack to the cheapest option when shoppers are able to take advantage of those member prices.

There’s no question that signing up for a host of different membership schemes is a bit of a pain, and there remain big questions over how fairly the programme has been implemented.

However, if you want to keep your food shopping costs as low as possible then making use of these deals makes a lot of sense.

Mortgage rates have (likely) peaked

Mortgage borrowers have had a tricky old time. The result of the mini-Budget last year has been that interest rates on home loans have increased incredibly, and that has put plenty of would-be buyers off going ahead with purchases.

However, it would certainly seem that rates are heading in a more positive direction now. The belief that Base Rate has peaked ‒ and will likely be reduced at some point next year ‒ has already led to the launch of cheaper deals across the market, and it seems likely this trend will continue.

That doesn’t mean mortgages are cheap, not by any stretch. But we can be relatively confident that they are going to continue getting cheaper from this point on. 

Sneakiness pays when it comes to tax

The Government has been happy to employ stealth tactics when it comes to tax. Rather than increase the headline rates, the Treasury has instead opted to freeze the thresholds at which point we start paying the various rates of Income Tax, among other levies.

It’s an incredibly effective move too ‒ as our salaries go up through inflation, so too do the tax receipts. 

We might not even notice what we are paying either, but the Treasury certainly does ‒ analysis from the Office for Budget Responsibility reckons that over the next couple of years this tactic will see an additional four million people start paying tax on their income, an additional three million paying the higher rate, and 400,000 qualifying for the additional rate.

While there’s not a huge amount we can actually do about it, it does demonstrate how important it is to actively engage with our finances so we have an informed insight into where our money is going each month, and why.