The next 12 months will see yet more change for savers and investors, with dividends, National Insurance and the state pension all on the agenda for 2022.
AJ Bell’s experts take a look at ten things that will impact our finances in 2022 and what, if anything, people can do about them.
Personal finance changes – Laura Suter, head of personal finance at AJ Bell:
1) National Living Wage increases to £9.50 per hour for over 23s (and similar increase at other age levels) in April
Impact: Someone aged 23 or over on the minimum wage working a 37.5 hour week will see their weekly earnings increase from £334.13 to £356.25. Over the course of a year that could mean a pay rise of well over £1,000, from £17,374.76 to £18,525.
|23 and over||21 to 22||18 to 20||Under 18||Apprentice|
|April 2021 (current rate)||£8.91||£8.36||£6.56||£4.62||£4.30|
“The pay rise for everyone on the National Living wage will be hugely welcome at a time when both taxes and prices are rising. And it’s an inflation-beating increase too, with those 23 and over getting a near 7% increase, while those ages 21 and 22 get a near 10% increase – something no one would turn down at the moment. For someone working 37.5 hours a week it represents more than a £1,000 extra a year.
“However, the pesky National Insurance increase and stealth tax raises will eat some of this up, and an increase in living costs will eat a bit more up. But many of those on the minimum wage will still be better off as a result of the move.”
2) Energy price cap increases: some estimate it will increase by £400 or more. Announcement on the actual rate will come in February
Impact: The energy price cap in April is based on price increases happening at the moment, and as energy prices have leapt far higher there’s no doubt that households are in for another increase. Some estimate the rise will be around £400, which would take the average annual costs for someone on a default tariff from the current £1,277 to £1,677 – and it will be even higher for those on pre-payment meters.
“If you talk to anyone at the moment, rising heating bills are top of their concerns, amid a hike in prices across the board, and many will feel they can’t handle another rise in their energy bills – but that’s what’s coming down the line in April. Estimates vary wildly of how much the average homeowner will see prices rise by, from £150 up to £400 extra a year.
“The price cap rate will be announced in February, giving everyone a chance to prepare for the increase. But a big question-mark hangs over all this, as Ofgem, the regulator, is currently looking at reforming the price cap, with changes expected in time for April’s price increase. With a backdrop of failing energy firms and the price cap currently being out of line with rising wholesale energy costs, it seems unlikely any move will reduce the cost of energy for consumers.”
3) Council tax rates increase: Institute for Fiscal Studies estimates they will rise by 2.8%
Impact: The average Band D council tax set by local authorities in 2021/22 was £1,898. (Council Tax levels set by local authorities in England 2021 to 2022 (publishing.service.gov.uk)) A 2.8% increase implies a 2022/23 council tax bill of around £1,951.
“The Government’s reforms to social care leave local councils footing some of the bill, and this coupled with councils having to help more local people who hit tough financial times during the pandemic, mean it was inevitable that council tax bills would rise again.
“Households already saw an average increase of £7 a month this year, and the average Band D home looks set for a similar rise this year. However, the actual increase will vary dramatically around the country and many will face far higher increases. Anyone who is struggling to pay should seek help, as there is lots of support available for those on low incomes.”
4) Rail fares due to increase by 3.8% in January
Impact: Rail fares usually rise by July’s measure of RPI inflation, which was 3.8%. This is the highest RPI figure in July since 2011, when it clocked in at 5%, meaning commuters will face the largest rail fare hike for a decade. However, the Government has flexibility to set a different price increase, and it still hasn’t revealed its final plans for 2022.
Commuters already paying high costs on popular routes will face further hikes, for example if fares rose by 3.8%, the commute from Oxford to London including a London travelcard will now clock in at almost £6,700, rising by £245, while the annual commute from Tunbridge Wells to London, including travel card, will leap over the £6,000 mark, rising by more than £220 to £6,033. Meanwhile, the commute from Macclesfield to Manchester will rise by £84 to £2,284.
“Commuters may face an even larger hike in January if the Government decides to raise rail fares above inflation. In 2021 it increased fares by 1% above inflation to help cover Government money spent as a result of lost revenues in the rail industry during the pandemic. As the nation has been sent back to work from home and commuting never returned to normal this year, the same logic could be used to roll out another above-inflation hike next year – although it would take a bold Government to do so when the increase is already so high.
“Many commuters have had almost two years away from commuting five days a week and its eye-watering cost and will already be reluctant to return to it – and that’s before another hike in fares. But if you know you’ll need to buy a season ticket for next year, you can buy before the hike in January to keep costs down.”
5) Prepare for rising interest rates
Impact: The Bank of England is on a track to higher interest rates, but no one knows when exactly the Bank will pull the trigger and rates will be raised from their current record lows. This is the longest period ever that interest rates have remained unchanged, with rates having been at the current 0.1% for one year, eight months and 25 days*. Expectations are currently that Base Rate will hit 1% by the end of 2022.
“Any rate rise is good news for savers, who have suffered almost 13 years of the Base Rate being less than 1%, but when any rate rise happens savers won’t get an increase immediately. They will have to wait longer and often many won’t see any increase at all, unless they switch accounts. Ahead of any rate rise savers need to be wary of fixing their savings rates, as they’ll miss out on any increase when rates do rise.
“It’s the opposite case for mortgage holders, who should fix now while rates are still near record lows. Anyone on a variable rate deal will see their mortgage costs rise overnight when the Bank increases rates, so they should lock in at low rates. It’s the same story for anyone with debt, who should try to switch it to a lower rate now before any increase happens.”
*Data correct to 14/12/21
**Based on Refinitiv data