What do tax cuts and market chaos mean for young Britons?


At a time when millions are grappling with rising prices and a cost of living crisis, the International Monetary Fund has warned that the UK government’s spending plans “will likely increase inequality”.

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The UK economy has been gripped by market chaos over the past week.

The pound fell, the value of government bonds crashed and the Bank of England stepped in with an emergency plan to stabilize financial markets.

This chaos dates back to the announcement by the Minister of Finance, Kwasi Kwarteng, of a “mini-budget” on September 23. His plan includes sweeping tax cuts, fewer rules and regulations for businesses and the removal of the bonus cap for bankers.

At a time when millions of people are grappling with rising prices and a crisis in the cost of living, the International Monetary Fund said on Tuesday that the new policies “will likely increase inequality”.

Criticism and uncertainty have become widespread, especially among young people. Google searches such as “do tax cuts help me” skyrocketed, while outrage was rampant on social media.

So what does all this mean for young Britons? What is the impact of the budget and the resulting economic chaos on income, new homeowners and student loans?

CNBC Make It spoke to three personal finance analysts to find out.

Do tax cuts equal more cash?

The majority of the budget focuses on tax cuts. The basic income tax rate will drop by 1 pence ($0.01), which will “help a bit”, says Chieu Cao, CEO of financial wellness platform Mintago.

“Someone earning £25,000 a year will save £124.30 a year, while those earning £35,000 will save £224.30,” he added.

Similarly, the reversal of the recent 1.25% hike in National Insurance (income tax) will have a limited impact and will increase employee wages.

“Someone earning £30,000 a year will save £218 when the NI rate comes back down,” Cao said. “But, in an environment of high inflation, these savings will do little to account for the rising cost of living.”

Those higher up the income spectrum benefit the most.

Myron Jobson

Senior Personal Finance Analyst at Interactive Investor

In addition to the usual taxes, many recent graduates worry about what the budget will mean for them. Student loan repayments are not directly affected by the so-called mini-budget, and the government has capped interest rates on these for the time being.

How does this affect the housing market?

At first glance, the budget only addresses a small part of the housing market: a reduction in stamp duty, a tax paid by many buyers when buying real estate. However, first-time buyers only have to pay the tax if their new home is worth more than the average UK property.

The majority of first-time buyers fall below that threshold and therefore will not benefit from the reductions, Jobson said.

“The change primarily benefits high-income first-time buyers and those with sufficient support from mom and dad’s bank,” he added.

Indeed, Jobson said the mini-budget may have made buying a home even more difficult.

It is thought that the UK government’s new mini budget may have made buying a house even more difficult.

Photo by LanaStock via Getty Images

“The fall in the value of the pound following the mini-budget led to violent movements in the money market which saw lenders withdraw competitive mortgage loans in anticipation of further interest rate hikes. many budding owners on the sidelines,” he said. Explain.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, adds that it is also likely to impact those who are not yet looking to buy and plan to continue renting their homes.

“Landlords with mortgages are likely to see their monthly mortgage payments increase significantly… Chances are they will pass on the additional costs in higher rents so that renting the property adds up for them. ”

What if I want to start investing for the future?

The mini-budget itself has little impact on savings and investment, two themes that young people are constantly urged to prioritize. The economic impact of new policies in terms of creating uncertainty around interest rate hikes, inflation and recession could, however, make the difference.

“Interest rates are rising which would generally help young people to invest and save – this should give them better returns. However, interest rates are still dwarfed by inflation for most, which means that money left in savings accounts is likely to lose money in real terms; the price of everything else is rising faster than the size of their savings reserves,” Cao said.

For investors, the recent market turmoil might not be all bad news, Coles said. “There was an initial reaction to the turmoil, but over time the impact will depend on what you own and where these companies make their money,” she said.

“That doesn’t necessarily mean you should do anything different with your investments. If you have a reasonably diversified portfolio, it’s important not to panic because investing is a long-term business,” Coles said.

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