Posted 4 Jan 2022

Your financial review for 2022

It’s that time of year again where we talk about ‘New Year’s Resolutions’ and the other thing called ‘Dry January’. Every January we all tend to look at the bigger picture and our own financial situation with debts, bills, and insurances.

Looking back at 2021, there were some huge challenges that we faced both personally and financially. As we look forward to 2022 we can now see that there is hope for the future and some positivity following the hopeful end of lockdowns.

Ten big changes to personal finances in 2022

As of the 1st January 2022, there were ‘Ten Big Changes’ that have come into force in the UK economy that affects people’s personal finances.

Some of the main changes that could impact you and your pocket are:

Interest Rates (Bank of England)

In the week before Christmas, we saw the Bank of England increase its ‘Base Rate’ for the first time since the beginning of the COVID pandemic.

This is set to mark the beginning of a number of interest rate rises due to be introduced in 2022. Predictions for the level of interest rates that we are expected to see in the next 12 to 18 months range up to possibly hitting 5%.

The increase in December 2021 took us from a record low of 0.1% to the current rate of 0.25%.

The main areas of personal finances that will be impacted include mortgages, credit cards, and overdrafts.

For the first time since 2009 where rates were slashed, savers are set to benefit albeit only marginally for the moment.

Inflation Rate (UK)

Inflation rates are a figure published by the government that shows us how much the cost of goods and services change over time.

The current rate of inflation is at its highest rate in 10 years at 5.1%.

Usually, a good way to be able to tell is to compare the cost of your weekly grocery shop to previous costs. We have all experienced significant increases in the amount that we’re paying for our shopping and essentials.

Increasing energy prices and the higher rate of VAT in the hospitality sector will continue to add pressure to further increases.

National Living Wage

Due to be introduced in April 2022, the National Living Wage will be increasing affecting those workers currently on the lowest legal salaries.

The increase will see Over 23’s rise from £8.91 currently to £9.50 per hour, giving a nearly 7% over existing rates.

The weekly increase for someone aged 23 and above would go from £334.12 to £356.25, so an improvement of £22.13 per week (based on an average 37.5 hour week). This would mean that annually you could see a rise in pay of just over £1,000 per year, from £17,374 up to £18,525.

Other age groups and categories who will see similar increases are workers aged between 21 and 23, from £8.36 to £9.18 per hour, and those aged between 18 and 20 will go from £6.56 to £6.83.

Workers aged under 18 will also increase from £4.62 to £4.81, and those on apprentice schemes will go up to £4.81 from £4.30.

Energy Price Cap

There have been a number of personal expenses that have increased in 2021, the main one of those is energy prices that have rocketed.

We are due to see an increase in the ‘Energy Price Cap’ in April 2022 meaning that our bills should increase by hundreds every year.

The current consensus from experts is divided with ranges of estimates from £150 up to £400 per month. This could mean that the average annual price on a default tariff would jump to £1,677 from £1,277.

The formal announcement of the increase is due to take place in February ’22 which will be put in place in April ’22.

Council Tax Rates

The impacts of the Social Care reform and the pandemic sees continued pressure on local councils to raise cash.

Average UK households had an increase of £7 per month on their council tax bills in 2021, which is likely to happen again in 2022.

Current estimates suggest that the increase will be around 6% this year according to sources. Someone living in a Band D property could increase from £1,898 to 1,951 in the coming year.

Train Fares

Rail fares are regularly reviewed and often increase annually in July at the rate of inflation or RPI (Retail Price Index).

In 2021, the rate that the increase took place was 3.8% which is one of the biggest hikes in years. A similar level is set to be announced again for 2022 which could significantly impact commuters, especially in the South.

Someone commuting between London and Oxford will pay nearly £6,700 from March 2022, including their travelcard, which is an increase of £245.

This compares to similar increases in the North of the country where a commuter to Manchester from Macclesfield will increase by £84.

Some commuters have also now moved to flexible working meaning that there could be further increases in the future as fewer people use rail services.

Dividend Tax Rates

Business owners and company directors are set to see higher taxation levels for their dividend payments, announced in September’s budget.

Many small business owners, contract workers, and freelancers who pay themselves smaller salaries and the remainder in dividends will be impacted. This is another blow for the self-employed who have been hit by a number of revisions recently, including IR35 rules.

The new dividend rates are set to increase to:

  • Basic rate from 7.5% to 8.75%
  • Higher rate from 32.5% to 33.75%
  • Additional rate from 38.1% to 39.35%

This is one of many proposed changes to come in for self-employed and business owners in the UK.

National Insurance Rates

One of the biggest influences on the increase in National Insurance Rates is the cost of adult social care in the UK.

The rates are due to increase from 12% to 13.25% on your earnings between £9,568 and £50,270 per annum. There is also an additional increase of 2% on earnings over £50,270 per year.

Reports suggest that the National Insurance rates will be frozen at 13.25% in 2022/23 with a potential increase to the ‘primary threshold’ from £9,568 to £9,880.

Data Roaming Charges

One of the first financial impacts since Brexit nearly 2 years ago, EU data roaming charges are due to come back.

Providers to re-introduce data roaming charges will include:

  • Vodafone
  • EE
  • Three

For those wanting to avoid data roaming charges, there are several providers who will not bring back these charges, including:

  • Tesco Mobile
  • Virgin Mobile
  • Plusnet

State Pensions

Retirement income for pensioners will increase this year, even though ‘Triple Pack’ changes mean that this will be lower than expected.

The two rates of pensions will increase by £4.25 per week for the ‘old’ basic rate and £5.55 for the ‘new’ flat rate. This means an increase of only 3.1% in the benefit in April 2022 because of scrapping the ‘earnings element’ of the state pension triple lock.

An increase in the rates of inflation next year means that the 3.1% rise could feel like a reduction in reality.

Daniel Sharpe-Szunko
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