As the cost of living is set to rise, are you as prepared as possible?

As a nation, we are currently experiencing what is for many of us an unprecedented rise in the everyday cost of living. We wanted to break down exactly what’s going on and how we could help you and your finances weather the storm.

As the cost of living is set to rise, are you as prepared as possible?

Why is the cost of living going up? 

We have recently reported on a range of topics that can be attributed to the squeeze on our wallets. 

1. The rise in National Insurance (NI) 

When the hike in NI contributions was announced last autumn, we detailed how it may affect you personally and also as an employer. Essentially, the increase of 1.25% will likely result in reduced take-home pay for everyone who pays National Insurance. Recently, there have been calls to have the increase scrapped amid mounting pressure on households[1],  but at the time of writing it still stands.  

2. Soaring inflation 

In December we reported that inflation had risen to 5.1% in the 12 months to November 2021 – a 10-year high. However, this recent record was then broken in January by figures released for the 12 months to December 2021 stating that inflation has now risen to 5.4%; this is the highest rate for nearly 30 years[2]. Analysts forecast that the Consumer Price index, which is tracked over time and gives an indication of inflation, could reach 7% by April of this year if action is not taken by the Government to end climbing energy prices[2], something we will come to shortly.  

Although the average rate of inflation is 5.4%, some goods, like everyday food items, have seen increases far higher than this. It’s been reported that items such as the cheapest supermarket pasta have increased from 29p to 70p – a jump of 141%[3]. Baked beans rising from 22p to 32p, a leap of 45%, and tinned spaghetti seeing an increase of 169% from 13p to 35p are a couple of other examples but there are many more[3]. While these amounts may seem small, they contribute to the severe squeezing already felt by lower-income households.  

3. The Bank Rate increase 

Along with rising inflation were reports of the Bank Rate increase from 0.1% to 0.25% at the end of last year. The Bank Rate is used to help control inflation and influences interest rates for commercial banks, the thought process being that if it’s more expensive to borrow money, it will impact spending behaviour, which in turn could stop prices rising as quickly.  

On 3rd February, The Monetary Policy Committee (MPC) which sets the Bank Rate, increased it by a further 0.25%. It now stands at 0.5%.[4]

4. Energy price cap to go up 

A large reason for the rise in inflation is due to the increase in the cost of wholesale energy. The energy cap, set by Ofgem, is reviewed every six months and is due to rise again in April this year. It’s predicted to jump by 51%, affecting millions of households who are on a price cap variable rate[6]. Those whose energy firms went bust or whose fixed deal ended (there aren’t any cheaper tariffs available now) may feel further financial pressure when this happens.   

So how could we help? 

We here at Brunsdon Financial may be able to help ease the burden in a couple of ways.  

Salary exchange 

Salary exchange is an effective way of reducing your level of tax obligation and NI contributions.  

As an individual, stopping your payments temporarily now may offer a short-term and small increase in your take-home pay, however your retirement pot will see a greater negative effect by missing out on the tax-relief received when you pay in. Your taxable income will also be higher. If you can, it’s best to keep on making your pension contributions. If you can afford to increase the payments, this may help to further reduce your tax and NI contributions, but it may be best to seek advice before doing so.  

As a business, if you don’t currently provide a salary exchange scheme, but instead offer relief at source as the way to make employee contributions, you may be losing money. Relief at source comes out of taxed pay and does not take into account NI, so you won’t be reducing your NI obligation. Why not get in touch with us to see how we could help your business make the switch to a salary exchange scheme today?  

Mortgages 

With interest rates rising, up go the mortgage payments of the many households who are not on a fixed-deal. If you’re on a standard variable rate, you may have already experienced a rise in your mortgages payments since the Bank Rate increase was announced.  

It may be worth moving onto a fixed-deal now before further rises occur or even checking the market for a better deal than the one you’re already on. Our B Mortgage Services team are on hand to discuss any queries you may have regarding fixing your mortgage, moving home and more.  

As we all feel the pinch more, we recommend seeking sound financial advice before making any big decisions involving your money. To discuss any of the topics mentioned in our cost-of-living update, please don’t hesitate to contact one of our dedicated Advisors.

The information provided regarding tax treatment or legislation is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs practice (January 2022), all of which may be subject to change. The Financial Conduct Authority does not regulate tax advice and estate planning.  

Your home may be repossessed if you do not keep up repayments on your mortgage. 

The information provided does not constitute advice or recommendation. Pension funds can fall as well as rise, irrespective of the level of risk chosen, and the value of a pension and any income generated from it cannot be guaranteed and can fall as well as rise as a result of market volatility. You may not get back the amount you originally invested. 

Brunsdon Financial is not responsible for the content of third-party websites. 

Source 1, Source 2, Source 3, Source 4, Source 5 

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As the cost of living is set to rise, are you as prepared as possible?

As the cost of living is set to rise, are you as prepared as possible?

As a nation, we are currently experiencing what is for many of us an unprecedented rise in the everyday cost of living. We wanted to break down exactly what’s going on and how we could help you and your finances weather the storm.

Why is the cost of living going up? 

We have recently reported on a range of topics that can be attributed to the squeeze on our wallets. 

1. The rise in National Insurance (NI) 

When the hike in NI contributions was announced last autumn, we detailed how it may affect you personally and also as an employer. Essentially, the increase of 1.25% will likely result in reduced take-home pay for everyone who pays National Insurance. Recently, there have been calls to have the increase scrapped amid mounting pressure on households[1],  but at the time of writing it still stands.  

2. Soaring inflation 

In December we reported that inflation had risen to 5.1% in the 12 months to November 2021 – a 10-year high. However, this recent record was then broken in January by figures released for the 12 months to December 2021 stating that inflation has now risen to 5.4%; this is the highest rate for nearly 30 years[2]. Analysts forecast that the Consumer Price index, which is tracked over time and gives an indication of inflation, could reach 7% by April of this year if action is not taken by the Government to end climbing energy prices[2], something we will come to shortly.  

Although the average rate of inflation is 5.4%, some goods, like everyday food items, have seen increases far higher than this. It’s been reported that items such as the cheapest supermarket pasta have increased from 29p to 70p – a jump of 141%[3]. Baked beans rising from 22p to 32p, a leap of 45%, and tinned spaghetti seeing an increase of 169% from 13p to 35p are a couple of other examples but there are many more[3]. While these amounts may seem small, they contribute to the severe squeezing already felt by lower-income households.  

3. The Bank Rate increase 

Along with rising inflation were reports of the Bank Rate increase from 0.1% to 0.25% at the end of last year. The Bank Rate is used to help control inflation and influences interest rates for commercial banks, the thought process being that if it’s more expensive to borrow money, it will impact spending behaviour, which in turn could stop prices rising as quickly.  

On 3rd February, The Monetary Policy Committee (MPC) which sets the Bank Rate, increased it by a further 0.25%. It now stands at 0.5%.[4]

4. Energy price cap to go up 

A large reason for the rise in inflation is due to the increase in the cost of wholesale energy. The energy cap, set by Ofgem, is reviewed every six months and is due to rise again in April this year. It’s predicted to jump by 51%, affecting millions of households who are on a price cap variable rate[6]. Those whose energy firms went bust or whose fixed deal ended (there aren’t any cheaper tariffs available now) may feel further financial pressure when this happens.   

So how could we help? 

We here at Brunsdon Financial may be able to help ease the burden in a couple of ways.  

Salary exchange 

Salary exchange is an effective way of reducing your level of tax obligation and NI contributions.  

As an individual, stopping your payments temporarily now may offer a short-term and small increase in your take-home pay, however your retirement pot will see a greater negative effect by missing out on the tax-relief received when you pay in. Your taxable income will also be higher. If you can, it’s best to keep on making your pension contributions. If you can afford to increase the payments, this may help to further reduce your tax and NI contributions, but it may be best to seek advice before doing so.  

As a business, if you don’t currently provide a salary exchange scheme, but instead offer relief at source as the way to make employee contributions, you may be losing money. Relief at source comes out of taxed pay and does not take into account NI, so you won’t be reducing your NI obligation. Why not get in touch with us to see how we could help your business make the switch to a salary exchange scheme today?  

Mortgages 

With interest rates rising, up go the mortgage payments of the many households who are not on a fixed-deal. If you’re on a standard variable rate, you may have already experienced a rise in your mortgages payments since the Bank Rate increase was announced.  

It may be worth moving onto a fixed-deal now before further rises occur or even checking the market for a better deal than the one you’re already on. Our B Mortgage Services team are on hand to discuss any queries you may have regarding fixing your mortgage, moving home and more.  

As we all feel the pinch more, we recommend seeking sound financial advice before making any big decisions involving your money. To discuss any of the topics mentioned in our cost-of-living update, please don’t hesitate to contact one of our dedicated Advisors.

The information provided regarding tax treatment or legislation is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs practice (January 2022), all of which may be subject to change. The Financial Conduct Authority does not regulate tax advice and estate planning.  

Your home may be repossessed if you do not keep up repayments on your mortgage. 

The information provided does not constitute advice or recommendation. Pension funds can fall as well as rise, irrespective of the level of risk chosen, and the value of a pension and any income generated from it cannot be guaranteed and can fall as well as rise as a result of market volatility. You may not get back the amount you originally invested. 

Brunsdon Financial is not responsible for the content of third-party websites. 

Source 1, Source 2, Source 3, Source 4, Source 5