Cost-Of-Living Round Up – And What To Watch Out For Next Week

Published on
  • Key stats of the week
  • What’s happened this week in the cost-of-living crisis
  • List of the week: 8 ways you’ll pay more tax in 2023
  • Explainer of the week: Pension options on divorce
  • What to watch for next week

Key stats of the week

  • The annual growth of credit card borrowing rose from 11.5% to 12.2% in November.
  • We withdrew £5.2 billion of easy access cash earning no interest and £1.6 billion from easy access accounts paying interest
  • Mortgage approvals for new purchases are down almost 40% since August – before the mini-budget

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The Cost-Of-Living Headlines This Week

Strikes bed in: Susannah Streeter, senior investment and markets analyst:

“The insidious effect of rampant inflation has erupted into fresh labour disputes, with the transport network grinding to a go-slow with the latest mass walkouts of rail staff and highways employees. It’s a precursor of more disruption to come with medics planning to cease work in protest again as the fight between public sector staff and the government intensifies.

Inflation is running at double digits but average pay growth for state employees stood at just 2.7% from August to October 2022, compared to 6.9% for the private sector, compounding the cost-of-living squeeze. The stage is set for a fraught year for industrial relations as unions bed in for the long haul and the government seem determined to resist demands, for now.

With employees urged to delay a return to offices and work virtually this week, the pain of the hospitality industry is set to be prolonged, as town and city centres are set stay emptier for longer, which will be particularly onerous for the crucial lunchtime and after-work trade.”

Millions financially exhausted: Sarah Coles, senior personal finance analyst:

“Bank of England figures this week revealed that relentless inflation left millions of us exhausted by November. We’re eating into easy access savings – withdrawing £6.8 billion of easy access cash. We’re also ramping up our card borrowing faster than anytime over the past decade – with annual growth of over 12%.

At the same time, we’re backing away from the mortgage market – with approvals down 40% since just before the mini-budget. However, the burden of price rises hasn’t fallen equally, and there are still those with room to manoeuvre, who’ve been making the most of booming savings rates.

An impressive £10 billion made its way into fixed rate accounts in November, as savers capitalised at what may have been a peak in the market.”

List Of The Week: 8 Ways You’ll Pay More Tax In 2023

  1. More tax on pay: The personal allowance has been frozen at £12,570, and the higher rate threshold has stuck at £50,270 since April 2021. With wages up 6.1% in a year, the frozen thresholds mean we’ll pay more tax – and more of us will pay a higher rate.
  2. …. especially those on higher incomes: The £100,000 level at which the personal allowance starts to be withdrawn has remained frozen, and from April the additional rate threshold will fall from £150,000 to £125,140.
  3. More tax on profits: business owners could pay more tax after the dividend tax allowance is halved from £2,000 to £1,000 in April.
  4. More tax on investments: investors could pay more tax, as the dividend tax threshold is cut, and the capital gains tax threshold falls from £12,300 to £6,000 in April.
  5. More council tax: bills will rise up to 5% in April, so band D council tax could rise from an average of £1,966 to as much as £2,064.
  6. More tax on spending: inflation could mean paying more VAT.
  7. More tax on property: property investors could pay more tax thanks to the slashing of the capital gains tax allowance.
  8. More inheritance tax: higher house prices – up £33,000 in a year - and frozen inheritance tax thresholds could mean more IHT.

Explainer Of The Week: Pension Options On Divorce

  1. Pension offsetting – one person keeps the pension and trades it against other joint assets.
Pros Cons
  • It’s a relatively straightforward way to secure a clean break.
  • It can enable one of the couple to remain in the family home.
  • Trading away your right to a pension leaves you with a mountain to climb to rebuild.
  1. Pension sharing –the pension pot is split into two separate pensions.
Pros Cons
  • It enables a clean break.
  • Neither of the couple is left in the worst possible pension position.
  • It’s relatively complicated.
  • It requires a pension sharing order from the court to establish how the pension should be split.
  • You may want advice to improve your chances of securing a fair split – which comes at a cost.
  • Both partners need to rebuild their pension.
  1. A pension attachment order (pensions earmarking in Scotland) pays an income or lump sum to the other member of the couple when the pension holder starts taking their pension.
Pros Cons
  • It is not as complex as pension sharing.
  • It needs to be ordered by the court – which comes at a cost.
  • It’s not a clean break.
  • All the tax is paid by the person taking the pension - even when some income goes to their ex.
  • The person who doesn’t have the pension has no control over when they’re paid – so their ex can delay taking it. They can also stop paying into that pension and build up savings elsewhere.
  • When they die, the pension payments will stop to their ex.

What To Watch Out For Next Week

  • HL Savings & Resilience Barometer
  • Grocers’ trade updates
  • Divorce day

HL Savings & Resilience Barometer: Sarah Coles, senior personal finance analyst:

“Next week will see the launch of the third HL Savings & Resilience Barometer, produced with Oxford Economics.

This brings together a huge number of official datasets, to provide an overall picture of our finances right now – including everything from whether we have enough emergency savings to whether we can afford our debts and if we are saving enough into our pension. It also models what’s likely to happen over the next 12 months.

The figures will show just how badly we have been affected by the cost-of-living crisis, and the pain it still holds in store this year.”

Grocers’ trade updates: Susannah Streeter, senior investment and markets analyst:

“Tesco PLC (LON:TSCO), J Sainsbury plc (LON:SBRY) and Marks and Spencer Group Plc (LON:MKS) will be giving an update next week on how they fared during the crucial Christmas period. It’s traditionally a time of bumper sales and profit-making as customers splurge on extra special food and gifts but the cost-of-living crisis has been pushing customers towards the discounters, with Aldi reporting a 26% rise in sales in December.

The latest reading on retail sales from the ONS showed that food sales rose strongly in November as customer stocked up as the festive season approached, but it may be that closer to Christmas traditional grocers were forced to keep prices lower to compete, which may temper profit expectations.

This is an existing challenge for Tesco which reported at the half year that despite higher sales, underlying operating profit fell 9.8% as customers switched to own label products and input costs rose.

Sainsburys has also been spending big on keeping prices low. It also has increased exposure to general merchandise sales, through owning Argos., General merchandise is a riskier area of the market when real wages are falling as buying a new gadget isn’t as important as putting dinner on the table.’’

Divorce day: Helen Morrissey, senior pensions and retirement analyst:

“Solicitors often see an uptick in divorce queries in January with the first working Monday of the month often dubbed divorce day. A fraught festive season cooped up with our nearest and dearest can put even the happiest unions under pressure but for some relationships it can be the final straw.

Financial settlements often focus on assets such as the family home, but this means longer term issues like pensions can be overlooked with the potential that one partner – often the woman – faces retirement with insufficient income to meet their needs.

Pensions need to become an integral part of financial planning around divorce so both partners can plan for their financial futures with no nasty surprises.”