Brilliant tips, tricks and tools to help you and your money in 2023

We all knew this winter was going to be tough on our budgets. But the delayed Autumn Statement delivered by the Chancellor on Thursday 17 November confirmed a stark new financial reality that will last into 2023 and probably beyond: higher taxes, rising household bills and the end of ultra-cheap mortgage rates.

The announcements come against a backdrop of stubborn inflation, which continues to push up the price of most basics, and much higher borrowing costs, not just for individuals and businesses, but the government too.

Pensioners and vulnerable groups can seek solace in the fact they will be mostly insulated from the impact of inflation and continue to have their energy bills subsidised, and one big upside of rising rates is that savers will be better rewarded.

However, 2023 is clearly going to be challenging for our finances. Thankfully, I’m here to break down exactly what’s been going on and how it’ll affect you – plus, in each area of your finances, I’ll offer you three practical things YOU can do.

Inflation

The sharp rise in the price of – well, just about everything - has hit all of us since the middle of 2021. Back then, prices were rising at the rate of around 2% a year. But by December, inflation had gone up to 5% and in July it reached a grim new milestone, hitting double-digits for the first time in decades. The day before the Autumn Statement, it was announced that inflation had edged up further to 11.1%, the highest rate for 41 years.

If it feels like your supermarket bill is a lot more painful these days, you certainly aren’t imagining it. Food price inflation was 16% in October, with the price of oils, fats and pasta going up by a third, and low-fat milk becoming 48% more expensive.

The past year or so has been a reminder of just how corrosive inflation can be. When inflation was averaging less than 1% (such as in 2020), we didn’t need much of an uplift in our income to keep up with it. Now, we are effectively losing 10% of the spending value of our money. Given that average wages are growing at 5-6%, this means most of us are seeing a steep fall in our take-home pay.

Inflation can also have major repercussions for borrowers and investors. Central banks have traditionally fought inflation by raising interest rates. The theory is that when borrowing becomes dearer, people spend less, meaning demand (and therefore prices) go down. This doesn’t just make mortgages, credit cards and loans more expensive. It also makes it harder for some businesses to borrow and grow, which can hit their investors’ returns in products like pensions and stocks and shares Isas.

When can we expect this to end? The Bank of England has predicted that inflation won’t start to fall until the middle of 2023 and won’t meet its target level of 2% until sometime in 2024. Much will depend on whether shortages of workers, the situation in Ukraine and energy production/storage in the UK improves over the next 6-12 months.

Inflation fighting tips:

In the meantime, what can you do to minimise the impact of inflation?

1. Firstly, do your own inflation audit. Closely monitor the price of items you buy every week to see if there are any changes. You can adapt by trading down to non-branded products or cutting out optional items altogether (at least for the time being).
2. Secondly, keep your receipts! In an age of contactless spending, self-service checkouts, and digital wallets, it’s all too easy to dispense with that little proof of purchase. But without it, you won’t know how much you spend per item because your bank statements will only tell you the total sum you spend with a retailer. I keep my receipts and put them in an old-fashioned receipt spike, but you could just put them in a box or drawer. You can also create a separate email folder for your online shopping orders. Compare them month-to-month to see where inflation is creeping in.
3. Thirdly, watch out for shrinkflation. Don’t just keep track of the price of the goods you’re buying, but the amount or quantity you get for that price as well. You may find certain products look like they cost the same as they did but they have in fact got smaller. A good way to work out the pure price you pay for something is by looking at the unit cost, rather than the headline cost – this way you can suss out the deals which seem cheaper but give you less value for money.

Benefits and State pension

Rising inflation in 2022 has rapidly translated into a cost-of-living crisis, which has hit the poorest and most vulnerable households particularly hard. The government has responded by guaranteeing to raise the state pension and benefits in line with September’s rate of inflation (10.1%), matching a guarantee previously made to those on disability benefits.

The Chancellor said that around 10 million working age families on benefits would be around £600 a year better off, while those in work should also benefit from the national living wage rising by 9.7% to £10.42 an hour.

Pensioners are protected from the full impact of inflation under the “triple lock” guarantee, which will be maintained in 2023. That means the full new state pension, currently £185 a week for a single person, will increase to £204 a week from April – a yearly increase of £972 to around £10,600.

Older people on the basic rate state pension will also see an increase at the same rate. Right now, the old state pension is £141.85 a week – topped up by additional entitlements if earned during working years – which will now be bumped up to £156.20 a week, or £8,120 a year.

All in all, typical pensioners will gain £870 over a year and for those on pension credit, that same guarantee will mean an extra £1,470 for couples and £960 for singles.

However, it’s worth noting that these rises won’t kick in until April 2023, which is why there will also be a rerun of the cost-of-living support package, first rolled out back in May. This time around, those on means-tested benefits will receive £900 (as opposed to £650) while pensioners and those on disability benefits will get £300 and £150 respectively. It is not yet known when these new payments will be made.

Social housing tenants – that’s one in five households - will also have their rent rises limited to 7%, not the inflation rate plus 1%, which should save the average tenant £200 over 12 months.

Tips to help if you’re on a low income and struggling:

1. Firstly, check you’re getting all the help you’re entitled to. For example, there are 800,000 pensioners in the UK who are eligible for pension credit and not receiving it. On top of the benefits themselves, you’ll also get other cost-of-living payments. You can use the Virgin Money benefits calculator Link opens in a new window to check you’re getting everything you’re entitled to.
2. Secondly, if you are on benefits, check out budgeting loans Link opens in a new window. This is an interest-free loan offered by the government to help pay for furniture and white goods, rent in advance, costs linked to getting a new job and other one-off expenses. Repayments are automatically taken from your benefits. Check the government’s website for more information and to see if you’d be eligible.
3. Thirdly, ask your council about its Household Support Fund Link opens in a new window. The government is giving councils a further £1bn to distribute to people most in need over the next year. Go to your council’s website to find out if you’d qualify.

Energy bills

With energy bills rocketing, the Government has had to step in to shoulder some of the burden. Households are currently benefitting from a £400 discount on energy bills and the Energy Price Guarantee Link opens in a new window limits the amount you can be charged per unit of gas or electricity. This means the average household energy bill will be £2,500 a year until the end of March.

Come April, things will become more challenging. The discount drops away and the Energy Price Guarantee cap will increase, seeing the average energy bill rise to £3,000 each year. However, the drop in wholesale gas prices and hopefully milder weather could result in a little more relief in Spring.

In the meantime, one small piece of good news is that the alternative fuel payment for those on heating oil, LPG and other “off-grid” energy sources will double from £100 to £200 this winter.

Otherwise, remember that the EPG, whatever level it’s at, is applied to the charge per unit (a kilowatt hour of gas or of electricity) so households using more than average will pay more than average. So, the onus is still very much on households to reduce their energy usage.

How to take the edge off your energy bills:

1. Firstly, know how to calculate energy usage. Take the wattage of the appliance you use, then multiply it by the hours you use it for. Divide by 1000 to convert to kilowatts and multiply that by 30 for a monthly figure. Then multiply by how much you pay per kilowatt hour to work out how much that appliance costs you per month.
2. Secondly, know your energy rights. Although your energy company can hike your direct debit payment, they must also treat you fairly and if your credit is too high you can ask for some of it back.
3. Thirdly, comb charity shops for quality knitwear. Central heating is the biggest drain on our energy bills, and it can be turned on more sparingly if you’re wearing good quality knitwear. But while genuine wool keeps you warmer than polyester, it can be expensive first-hand. I found a high-quality Shetland wool cardigan in a charity shop recently for just £6, all because it had a tiny hole in the shoulder. This was easily mended, and I now wear it in my home office all the time.

Mortgages and Home-buying

The base rate set by the Bank of England started creeping up earlier in 2022, but since May it has raced from 1% to 3%. Mortgage rates were bound to follow. The question is whether financial markets will continue to push up predictions for inflation and interest rates, as they did after reacting badly to the Mini-Budget in September, with the effect of forcing lenders to make their fixed-rate mortgages even more expensive.

A key driver behind the measures set out in the Autumn Statement is to reassure financial markets that we are managing our national debt properly. That message seems to get getting through, with the pound rising against the dollar in the days afterwards.

A big relief for homebuyers is that September’s stamp duty cut is here to stay, albeit only until March 2025. It means no stamp duty is now paid on the first £250,000 of a property's value for all buyers in England and Northern Ireland; for first-time buyers it is £425,000 – which is a rise from £300,000.

So, on a £400,000 property this will save a first-time buyer £5,000, and it will save all other buyers £2,500.

If the Bank of England feels less of a need to raise interest rates so drastically over the coming months, this might ease the pressure on those 100,000 people currently coming off fixed rate mortgages every month.

However, the consensus is that rates may go up by another 1% to 2% by next spring before plateauing. What’s more, any calming of the waters achieved by the Autumn Statement will still come too late for those whose fixed-rate deals expire now. Borrowers who fixed at 1 -2 % are now finding the cheapest new two-year or five-year fix is 5 to 7 per cent.

But another fixed deal is not the only option, and it might not be the best one for you.

What to do if you’re weighing up your mortgage options:

1. Firstly, think about tracker and standard variable rates (SVRs). Trackers rise and fall with the Bank of England’s base rate, while standard variable rates can be changed at any time. Both options can be cheaper than fixing and might be a better bet if mortgage rates were to peak then fall over the next two or five years. However, these options aren’t for those who need cast-iron certainty about what their repayments will be.
2. Secondly, consider overpaying if you can afford it. You might be thinking about putting any surplus cash into your savings, but the rate on that account would need to be higher than your mortgage rate. If it isn’t, and you have already built up an emergency savings pot, it could make more sense to put surplus cash into the mortgage to reduce your interest bill and your payback time.
3. Thirdly, talk to your bank or existing mortgage lender. Their advice is free and they may be able to provide some incentives or a more competitive deal to stay if you are already a customer, or have a mortgage with them. Alternatively, talk to a mortgage broker. If you're reaching out to a broker, you may not even have to pay a fee, as most brokers earn their commission from lenders. They’ll be able to find deals that you can’t, and are particularly helpful if you have a tricky situation (e.g. you’re self-employed).

Income taxes

While the basic and higher rate of tax hasn’t risen, the decision to freeze the thresholds until 2028 will see many of us paying more tax.

That’s because as wages rise with inflation, more of us will be hit by higher tax bands. Supposing earnings rise by 5% a year over the next five years, someone earning £35,000 today would be more than £2000 worse off over the five-year period.

For £50,000 earners today, there is a double whammy, because any rise in their earnings will also take them into the higher rate 40% tax band. If their salary went up by 5% a year, they would be almost £10,000 poorer over the five-year period.

The only good news is that national insurance, which is like a top-up to income tax, went up last April but has gone back down again in November, so employees typically pay 12% and the self-employed 9%.

The bottom line is that the average graduate earning £27,000 is £15 a month better off, while a £50,000 earner is £40 a month better off than they were between April and November.

How can we stop fiscal drag being, well, such a drag?

1. Firstly, use calculators to work out your take-home pay. You can use The Salary Calculator Link opens in a new window to get a handle on how much money you’re really taking home every week or every month. While doing this won’t magic up more money for you, at least you’ll know what you’re dealing with.
2. Secondly, have a look at salary sacrifice. This is where, as the name suggests, you can sacrifice some of your salary for a valuable non-cash benefit like a company car or a cycle to work scheme, or higher pension contributions. Your income will be nominally lower for tax purposes and your employer won’t pay as much in national insurance, giving them a big incentive to support it. They might even bump up their contribution to your workplace pension with the savings so it’s an option well worth considering.
3. Thirdly, make the most of all your tax-free allowances. For example, you can transfer up to £1,260 of your Personal Allowance to your husband, wife or civil partner. This can reduce tax by up to £252 over the tax year.

Saving and Investing

Higher interest rates are at least a boon for savers, with banks now offering their best rates for a decade. It’s now possible once more to earn 2% to 3% for easy access and 4% on bonds with the right accounts, after years of rock-bottom rates. Hurrah!

We all have a personal savings allowance which means £2000 can be earned in interest tax-free each year. That was left untouched in the autumn statement. But for anyone with shares, dividends will be taxed less generously.

The dividend allowance was introduced in 2017 to help savers and set at £5,000. It’s now at £2,000, which covered most people’s dividend income. But it will be halved to £1,000 in April and then halved again to £500 in April 2024, catching a lot more in the tax net.

There’s a similarly drastic cut in the capital gains tax allowance, from the current £12,300 to £6,000 in April 2023 and £3,000 in April 2024. That could affect second home-owners.

Inheritance tax (IHT) thresholds are also frozen, which means the tax begins on properties above £325,000. However, a couple can potentially pass on a £1m property without leaving any liability. The level has been unchanged since 2009.

Three ways to make the most of your savings, investments, and assets right now:

1. Firstly, cherish your ISA allowance. The chopping of the dividend allowance makes your £20,000 tax-free allowance all the more important if you have an income-heavy portfolio in your stocks and shares Isa. Make sure you use yours every tax-year.
2. Secondly, manage IHT (Inheritance tax) smartly. For example, you can give assets away during your lifetime without paying IHT more than seven years away from death. Putting assets in a trust also avoids IHT, and this could be a way to pass money to children/grandchildren once they reach 18, for instance. If you’re not sure about how to do this correctly and legally, speak to a financial adviser.
3. Thirdly, keep an eye on savings rates as they improve.