A terribly taxing time
However you look at it, the new tax year won’t bring us much to smile about, says Paul Lewis.
The start of the new tax year on Sunday 6 April will not bring much joy. The amount you can earn before income tax is paid is still frozen at the £12,570 a year set in April 2021. So as your income rises, so does the tax you pay. Higher-rate tax still begins above £50,270 (£43,662 in Scotland) and income tax on savings interest begins over £1,000 a year for most people – an amount unchanged since 2016.
Many incomes will rise this April. Official statistics say wages are increasing by 6% a year. The minimum wage for people over 21 has increased from £11.44 an hour to £12.21 – a rise of 6.7% – and for 18- to 20-year-olds from £8.60 to £10 – a 16.3% rise. For most people a fifth of those increases will be clawed straight back in income tax and for a growing number – some two-fifths – as they cross the higher-rate threshold.
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There’s also National Insurance for under-66 workers. The main rates of the State Pension are going up by 4.1% – but for the 8.5 million pensioners already paying income tax, a chunk of that rise from the Department for Work and Pensions will go straight back to the Treasury.
Most other benefits are not taxed – so people will keep all the 1.7% April rise. Disabled people on the highest rate of Attendance Allowance, Disability Living Allowance or Personal Independence Payment will get £110.40 a week – a rise of just £1.85. Carers will get an extra £1.40, taking their benefit to £83.30 a week. Widows bereaved before 6 April 2017 will get £2.50 a week more, totalling £150.90 a week. But Bereavement Support Payment for those widowed more recently will remain at its eight-year-old level equivalent to £80.77 a week for those with children and £23.08 without. It also runs out after 18 months.
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Benefit increases begin in the week of 7 April but most are paid four weeks in arrears, so the higher amounts cannot actually be spent until sometime in May. And they will not, in any case, cover the upward march of prices. The Bank of England expects inflation to reach 3.7% this summer, soon swallowing up any extra income from benefits.
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