1. Prices will continue to rise more than your pay for most of 2018
The cost of living is increasing at a near six-year high of 3.1%, having more than doubled during 2017, largely as a result of the fall in the value of the pound following the EU referendum in June 2016. Meanwhile, average wage growth is running at 2.3% (or 2.5% if you include bonuses) which means that real earnings are falling.
Household energy costs, petrol and car insurance have been among the worst culprits for price rises. Most of the big energy companies hiked tariffs during the year, with British Gas adding 12% to electricity bills in August. This time last year the average price of petrol on Britain’s supermarket forecourts was 111.9p a litre, but now it’s 116.5p. There’s not much we can do about that, unfortunately, although most experts are expecting a flat or mildly falling oil market in 2018 as US shale production continues to rise, offsetting attempts by the Organisation of the Petroleum Exporting Countries (Opec) to increase prices.
Car insurance has rocketed by an average of £200 over the past five years, according to Comparethemarket.com. Between September and November 2012, the average motor insurance premium stood at £559, but today premiums for the same three months have reached an average of £758 – a rise of £199. After years of increases in insurance premium tax, 2018 is unlikely to see further hikes so the inflation rate in car insurance may finally begin to slow.
Most economists expect the general price squeeze to continue through 2018, although there is some light at the end of the tunnel; the Bank of England is forecasting inflation to slip back to 2.4% by the end of 2018. Meanwhile, wage growth is expected to at least maintain its current rate, or moderately accelerate to above 2.5%, so Christmas 2018 could see the first recovery in real earnings for years.
2. Train fares will jump on Tuesday
The bad news is that the first big price rise of 2018 is just days away: on Tuesday UK rail fares will rise by 3.4% – the largest increase for five years. The rise covers “regulated” fares such as season tickets and long-distance journeys. But other fares can be raised or dropped at the train operators’ discretion. The price of an off-peak trip from Preston to Manchester goes up 6.6% to £16 from £15, while a London to Slough off-peak ticket is increasing by 9% from £9.60 to £10.50.
3. Letting agency fees will (eventually) be abolished
Tenants in England typically pay £404 every time they move, according to campaign group Generation Rent – and more than £800 in some parts of London. There can also be additional charges for tenants on low incomes and needing rent guarantors (at an average cost of £152), or simply needing to move in on a Saturday (an extra £62). But at some point in 2018 (the government has not given a precise date yet) England will follow Scotland and ban letting fees to tenants. Landlords threaten to retaliate with rent increases, but with a weak economy and lower pressure from migration, few experts reckon rents will rise by anything more than 0-1% in 2018.
4. Pensions will be the big money story of 2018
Many people could be in for a shock when they check their pay packet in April 2018. That’s because of a big change that will affect millions of people, who will see a bigger slice of their pay automatically diverted to a savings pot for their pension.
Automatic enrolment went live in 2012 and but the total minimum amount paid in is currently just 2% of qualifying earnings – made up of 0.8% from the worker, 1% from the employer and 0.2% in tax relief. However, on 6 April this will rise to 5% – typically 2.4% from the worker, 2% from their employer and 0.6% in tax relief. In April 2019 the total increases again, to 8%. So, if you are an affected employee, how much might you – and your employer – have to pay into your pension?
For someone on £20,000 a year, it means they will lose an extra £33 a month when they see their pay packet at the end of April 2018. Currently, they are contributing the minimum 1% of salary, which works out at £16.67 a month, including tax relief worth £3.33. From April, this will rise to £50 a month (with £10 of tax relief), then in April 2019 it will rise to £83.33 a month. Employers will also have to put in lots more. Expect the opt-out rate to rise in 2018 – and for employers to use their increased pension payments as an excuse not to give wage rises.
5. The state pension will rise, tax allowances improve, but council tax will go up
From 6 April, pensioners entitled to the full new state pension (with a full 35-year record of NI contributions) will see their payments increase by £4.80 from £159.55 per week to £164.35 a week, which means there will be nearly £250 a year better off. The old basic state pension will rise from £123.30 a week to £125.95.
On the same day the new personal tax rates will come into force, with the chief change an increase in the personal allowance – that part of your pay not liable for income tax. It will go up to £11,850, a £350 increase from the current level. In practice, it turns into a £70 saving for a basic rate taxpayer, as it means that £350 more of their income is not liable to 20% income tax.
But much if not all of this will be taken up by potentially large increases in council tax. In a move slipped out just before Christmas, the government allowed local authorities to raise council tax by up to 5.99% next year. All councils will be able to raise council tax by up to 2.99% next year to fund local services, which is 1% more than this year. On top of this, 152 councils, which includes all London boroughs, unitary and metropolitan authorities and county councils, will be able to increase it by an additional “precept” 3% to fund social care services.
6. House price rises will slow to a dribble
Most people, particularly first-time buyers, will welcome a pause in house price growth, with most of the experts predicting just 0-2% rises in property prices in 2018 – and falls in the capital. For the first time since the financial crisis, earnings are likely to rise faster than property prices.
7. Interest rates will rise, and the stock market will wobble
Another 0.25% increase is expected in late spring, taking the Bank of England base rate to 0.75%. But unless the economy displays some unexpected perkiness, that should be the last rate rise of the year, so mortgage rates will stay low.
In 2017 the FTSE 100 enjoyed a rise of nearly 500 points, or more than 6%. In Frankfurt, the Dax index surged 13%, while on Wall Street the gains were even higher, with the S&P 500 advancing 18%. But after such a strong run – and with more interest rate hikes expected in the US – few believe 2018 will be anywhere near as good as 2017, with some predicting a major wobble in the market some time during the year.
8. The taxman will soon come knocking
Maybe you were one of the 2,590 people who used Christmas Day to fill in their tax return. But for the others who didn’t, the 31 January deadline looms.
If you are filing your 2016-17 return online for the first time, you will need to create a government gateway account if you haven’t already done so. Go to gov.uk/topic/personal-tax/self-assessment.
Angela MacDonald, head of customer services at HMRC, says filling in your tax return can be done anywhere and at any time, using your phone, tablet or computer. There are online webchats, live webinars, YouTube videos and social media support that can be accessed at any time, she adds.
Source: The Guardian