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As we move into a new fiscal year, the effect of inflation on our finances in the previous year is becoming more obvious. Households throughout the country are beginning to feel the burden of the nation’s growing standard of living due to the extraordinary price rise. There is not one part of running a family that is not growing more expensive, from the cost of food and utilities to the cost of household goods.
However, the impact of inflation on our finances is not only reflected in the rising prices of commodities we use daily. Additionally, the government has proposed new tax increases, affecting virtually every family in the country. These adjustments are part of a larger effort to combat the growing inflation rate and guarantee that the government possesses the resources necessary to continue delivering vital services to the public.
Tax Increases: Straining Lower-Income Families
A rise in the basic rate of income tax is one of the most important changes that will take place. Such a rise entails that those who earn more than a certain amount will be subject to a tax burden greater than their total income. The increased income tax will reduce the amount of discretionary money available to many families, which may have repercussions for their spending patterns and their quality of life in general.
Other taxes, including national insurance payments and council tax, will also be subject to rises in addition to the alterations made to the income tax system. Families with lower incomes are likely to be struck particularly hard by these changes since they may already need help to make ends meet before the imposition of these additional expenses.
Impact of the Ukraine Crisis on the UK Economy
UK inflation and the economy may be indirectly affected by the Ukraine crisis in the following ways:
- Trade: UK-Ukraine and UK-Russia trade is significant. However, these nations’ wars might interrupt trade channels, affecting the UK’s supply of products and services. As a result, UK inflation and expenses may rise.
- Energy costs: Russia is a key energy provider to Europe, and any gas or oil supply problems can raise UK energy costs. Higher energy prices can raise corporate manufacturing costs and cause inflation.
- Political Instability: The Ukraine war might create regional political instability, which could impact the global economy. Uncertainty reduces investment and economic growth.
- Military Spending: Joining the battle might raise UK military spending. Such a crisis might hurt the economy by diverting resources.
The intensity and duration of the Ukraine crisis, the UK’s engagement, and the global economic situation will all affect the UK economy and inflation.
Brexit Causes UK Inflation to Rise Above Bank of England’s Target
UK inflation has been affected by Brexit. Since Brexit, the pound has fluctuated, and imports have cost more due to customs duties and trade barriers. These factors have raised inflation above the Bank of England’s 2% target. As a result, inflation may strain household finances and restrict consumer spending, slowing economic development. To keep inflation under control, officials will closely watch economic developments.
Mitigating the Impact: Actions to Take
Despite these obstacles, there are actions that families may take to reduce the negative impact that these alterations will have on their finances. For instance, reducing spending on non-essential items and looking for methods to lower energy expenditures are both things that can assist in compensating for the increased cost of living. In addition, investigating other potential avenues of income generation, such as working as a freelancer or launching a side business, is also beneficial.
The government is also offering £37 billion in aid to help with the expense of living, with priority given to the most vulnerable citizens. Cost of living payments of £650 for those on benefits, £300 for those 65 and over, £150 for those with disabilities, and a Household Support Fund are all part of the bundle. In addition, taxes on both gasoline and alcohol are being reduced or frozen by the government. The government has also spent money on training programs, subsidizing renewable energy, and helping people find jobs.
Navigating the Changes in the New Tax Year
This start of a new tax year ushers in a deluge of financial adjustments that will unquestionably affect countrywide households. It is important to remember that there are methods to lessen the impact of these changes and find ways to continue living within our means, even if it may be challenging to adapt to them as they occur. We can weather the storm and come out on the other side with our money intact if we plan carefully and exercise some inventiveness.
If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.