It's been another tough year for many of us. Here are the major things that have affected our finances over the last 12 months.
The economic headlines may be getting better, but for many of us 2013 was another tough financial year. Many of the Government’s austerity measures are only now really coming into effect.
Let’s take a look back at the main things that affected our finances this year.
Government tax measures
The tax-free personal allowance for Income Tax rose from £8,105 to £9,440 in April. Meanwhile the higher-rate (40%) threshold reduced again from £34,371 to £32,011.
The additional rate for people earning over £150,000 a year was cut from 50% to 45%.
Age-related personal allowances are now frozen at £10,500 for those born between 6th April 1938 and 5th April 1948, and £10,660 for those born before 6th April 1938 from 6th April.
There are no longer any age-related allowances for any retirees born after 6th April 1948; instead they are taxed at the same limits as working-age people. This controversial measure from Budget 2012 was dubbed the ‘granny tax’.
Government benefit changes
Most working-age benefits were increased by 1% from April. The exceptions were the basic and 30-hour elements of the Child Tax Credit and Working Tax Credit, and Child Benefit, which are all frozen until April 2014.
A benefit cap of £500 a week for couples and single parents with children at home, and £350 for single adults who don’t have children or children living at home, was introduced. The exceptions to this rule are households where someone receives Working Tax Credits, disability or armed forces benefits.
The Government’s flagship Universal Credit, which replaces five benefits including Jobseeker’s Allowance and Child Tax Credit with a single payment, has started to be introduced. However, IT disasters may see its final deadline pushed back.
The Basic State Pension rose by £2.70 a week from April to a maximum of £110.15 a week.
And people earning over £60,000 are no longer entitled to claim Child Benefit, with those earning between £50,000 and £60,000 having their payments reduced on a sliding scale.
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Pay rising more slowly than inflation…
Inflation continues to sit above the Bank of England’s 2% target. The Office for National Statistics says that pre-tax pay rose by 2.1% in the year to April. However, inflation outpaced it, rising by 2.4% over the same period.
…particularly energy prices
[SPOTLIGHT]Recent Office for National Statistics data shows that we’ve actually been spending less per week in recent years than at the start of the century. Average household spending is down from £533.50 a week in 2004/05 to £489 in 2012.
Housing, fuel and power costs now make up the biggest part of our weekly spend. Predictably, this winter saw another round of above-inflation price rises by most energy companies, notably the Big Six. The Government has now responded to public disquiet by announcing that it has changed how certain levies are paid for, which should account for a saving of £50 off the average household’s fuel bill. However, not all of the energy companies are passing this on in full.
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Motor fuel prices down at last…
There was some relief for motorists though as two fuel duty rises were scrapped, one scheduled for September and one for next year. The AA reported that the average UK petrol price fell to its lowest level in more than two and a half years in November. Diesel prices also dropped.
How to find cheaper diesel and petrol
…but rail fares still going up
Rail fares continued to rise above inflation though, although next year’s average increase has been capped at the Retail Prices Index measure of inflation, which is 3.1%.
Bank of England policy
The Bank of England’s Base Rate has stayed rooted at 0.5% all year again. Of far greater significance, though, is the Funding for Lending scheme. Cooked up with the Government, the scheme allows banks and building societies to borrow at cheap rates from the Bank. The result? Tumbling mortgage rates, as lenders got their hands on cheaper money.
So good news for people looking to borrow or remortgage. And the low Base Rate has also allowed people with mortgages tracking that to overpay as their monthly repayments continue to be low.
But it’s been a bloodbath for savers, with rates continuing to plummet across the board. Even the end of the tax year, traditionally a time when there’s a flurry of competition for ISA customers, was tumbleweed quiet.
To illustrate this, the top rate on an instant access savings account in January was 2.10%; it’s now 1.60%. Longer-term rates are starting to recover, but are still a long way from where they were at the start of 2013.
The Funding for Lending taps are now being shut off for mortgage borrowers, so the hope is that savings rates will start to creep up. But the Bank of England continues to indicate that its forward guidance that the Base Rate will not rise for at least another couple of years will hold firm.
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