How the Autumn Statement is going to make you poorer (or richer)

The Government and politics are changing pretty rapidly at the moment. And this whirlwind has brought some big changes for your finances – changes that will likely make you poorer (or maybe a little bit richer) next year.

Last week saw the so-called Autumn Statement, which is like a Budget that the Government refuses to call a Budget (we’re confused too). But Budget or not, it included lots of plans that will mean big changes come April next year. Here are the main ones you need to know about:

1. Your energy bills will be going up (again)

We all know that energy costs are rising – just looking at our direct debits makes us wince. But the bad news is that the costs are going up again.

In October, the Government brought in the Energy Price Guarantee. It caps the average household bill at £2,500 (though because the cap is on the unit price of energy, lots of people will pay more than this amount). However, this scheme is ending in April, when the cap will rise to £3,000 for the average home.

It gets worse. At the moment, we’re all getting £400 off our energy bills (hopefully you’ve noticed the £66 or £67 a month credit on your account). But there was no mention of this repeating next year. Together, the withdrawal of these two schemes mean the average bill will rise by £900 next year. So if you thought your direct debit was bad now, it could get even higher.

2. The minimum wage is rising – hurrah!

At Money Matters we’re keen to find the gems of good news that are around too. A big one is that the National Minimum Wage is rising from April next year.

There are lots of different minimum wages, depending on your age and whether you’re an apprentice, but the rate for people aged 23 and older is jumping from £9.50 to £10.42 an hour. For someone on a full-time minimum wage, that means a pay rise of almost £1,700 a year – not too shabby.

3. Tax rates are freezing – for longer

You’ve probably heard a lot about ‘frozen’ tax rates, along with the lovely term ‘fiscal drag’ – and no doubt all that jargon has made you tune out. So here’s a little explainer. (Just a little note, that this only applies in England, Wales and Northern Ireland, not in Scotland.)

Everyone can earn an amount of money before they have to start paying tax, called the Personal Allowance. And then everyone can earn a certain amount of money before the higher rate of tax, at 40%, kicks in.

Usually, those thresholds increase every year with inflation, which means you can earn a little bit more money before you hit them. This is a way to ensure that, when you get an annual payrise to keep up with rising prices, you’re not being taxed more.

However, the Government has decided not to increase these tax rates each year. It had already ‘frozen’ them at their current levels until 2026, but has now extended that freeze to April 2028. This means that as your wage increases, more of it will be taxed than if the thresholds had risen as normal. It’s pretty sneaky, because though you won’t see a big leap in tax in your next pay cheque, you’re gradually paying more tax over the longer term.

I did some number crunching, and this is going to cost someone on the average wage of £33,000 more than £2,500 more in tax over the next five years (that’s the total cost, not per year). If you earn £50,000 a year, it will cost almost £6,600 more over the next five years, and if you earn £75,000, it will cost you almost £13,000 more in tax.*

4. Pensioners and those on benefits are getting more

Another bit of positive news: the state pension and many benefits are rising by more than 10%. There had been lots of ‘will they, won’t they’ about this in the lead up to the Autumn Statement, but the Government decided to increase these payouts with inflation – which means an increase of 10.1%.

As a result, the full flat-rate state pension (which is paid to people reaching state pension age from 6 April 2016) will increase from £185.15 per week to £203.85 per week from April next year. That takes it to £10,600.20 a year – something of a milestone, as it’s the first time it’s breached the £10,000 a year mark.

Even those who might not consider themselves to be on benefits will reap the rewards – because child benefit will also increase. If you have two children, you currently get £36.25 a week in child benefit, but this is rising to £39.90 – meaning you can get up to £2,074.80 a year. It’s not a huge increase, but every little helps, right?

5. High earners are getting hit with more tax

If you earn more than £125,140 a year (very precise, I know) then you’ll be facing a bigger tax bill (again, not in Scotland). The Government has decided that everyone earning that amount or more will now pay the highest rate of income tax, which is 45%. The threshold at the moment is £150,000, and the change is happening next April.

So how much will that actually cost you? Someone on £150,000 will pay £1,243 more in tax a year, while someone on £130,000 will pay an extra £243 a year. But once you tip into that threshold, there are other implications that could cost you too: you’ll pay a higher rate of dividend tax, and you’ll lose your entire Personal Savings Allowance.

6. ‘Wealth taxes’ are rising – stuff your ISA full

Everyone gets a tax-free allowance before they have to pay tax on dividends and capital gains tax. But these are now being slashed.

Let’s take dividend tax first. At the moment anyone can earn £2,000 a year in dividends before they pay tax. You’ll then pay dividend tax at a rate of 8.75% if you’re a basic-rate taxpayer, 33.75% if a higher-rate payer, and 39.35% if an additional-rate payer.

But this tax-free allowance is being slashed in half next year, to £1,000, and then again to £500 from April 2024. It means more people will have to pay the tax (and deal with HMRC to tell them they owe the tax).

The Capital Gains Tax allowance is being cut too. Currently you can bank £12,300 of gains each tax year, but this is being cut down to £6,000 from April, and to £3,000 from 2024. It’s a potentially big increase in your tax bill, if you’ve got decent gains.

The solution for both is an ISA (or pension) as both protect your money from tax. It’s worth looking at whether you have any ISA allowance left for this year and if you can move any investments that are currently outside your ISA and pension into them. Just remember, ISA rules apply and can change in future.

*Based on the OBR’s March 2022 predictions for wage growth and the Bank of England’s predictions for inflation over the next five years.