Highlights

• Some of the planned changes of 2022 would be positive for the UK residents, while some others may lead to additional burdens on household savings.
• From 30 September 2022, the Bank of England will withdraw the legal tender status of all old £20 and £50 paper notes.

The new year will bring in many new changes that will impact the finances of the people, including changes in tax rates and energy bills. Some of these changes are going to be positive for the UK residents, while some others may lead to an additional burden on household savings.

Let us take a look at some of the key changes that would come into effect in 2022:

1.      Lower renewal premium for motor and home insurance

The new year is set to begin on a positive note for insurance consumers. From 1 January 2022, insurance firms will no longer be allowed to charge higher premiums from their existing customers to renew home and motor insurance. As per financial regulator FCA, the new move will lead to savings of £4.2 billion over the next ten years and will bring more transparency in the insurance sector.

2. New customs declarations rules

Goods imported from the European Union will now have to be declared to the UK customs. The new rule will come into effect from 1 January 2022, which might lead to additional paperwork and checkpoints. As per market experts, the new customs rule might increase the supply chain problem within the country because of more bottlenecks.

3. Energy price cap set to rise

Consistent rise in the wholesale energy prices in the international market over the last one year is set to impact the household budget. The UK energy regulator, Ofgem, will revise the price cap limit in February 2022, which will come be implemented in April 2022. According to the market experts, the price cap could increase by as much as £500 or more. The energy suppliers operating in the UK cannot charge customers above the price cap. The current price cap set by the regulator is at £1,277.

4. Increase in the national wage rate

The national minimum wage in the UK is set to rise from April 2022. The living wage for over 23s will increase to £9.50/hour from £8.91/hour. The new minimum wage is in line with the recent rise in inflation rates. People aged between 21 to 23 will get a minimum wage of £9.18 per hour, while those in the 18 to 20 age group will get £6.83/hour as minimum wage.

5. Cut in water bills

The household water bills will be slightly lower from April 2022 as the UK authority has asked the water utility companies to gradually drop prices over the next 3 years until 2025.

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6.      The rise in Dividend tax

Individuals who earn more than £2,000 a year through dividend income will get a lesser amount in hand as the dividend tax will rise by 1.25% from April 2022. As per the new dividend tax change, a basic rate taxpayer will pay 8.75%, while the new rate will be 33.75% for the high-rate taxpayer. For additional rate taxpayers, the new rate will be 39.35%. As per personal finance experts, investors can still save from new dividend tax if they move all investments to ISA or pension account as these accounts are not subject to dividend tax.

7. The tax break for the hospitality sector comes to an end

The value-added tax (VAT) for the hospitality and tourism sector will return to a 20% rate from the current rate of 12.5% after April 2022. The UK government has temporarily reduced the VAT rates to promote industry’s growth and support recovery after the Covid-19 pandemic. However, the recent rise in Omicron variant cases is once again impacting travel and hospitality. Moreover, the industry body UKHospitality has already urged the government not to raise the VAT rates.

8. State pensions rise by 3.1%

The new year will bring good news for the millions of retired people in the United Kingdom. The state pension will rise by £290 per year, in line with the inflation rate of 3.1% in September 2021. The new changes will result in more money in retired people’s accounts. The full-year state pension will increase to £9,628.50 from £9,339.

9. Old £20 and £50 paper notes will lose legal tender status

From 30 September 2022, the Bank of England will withdraw the legal tender status of all old £20 and £50 paper notes. The central bank has asked people to deposit old notes at their bank or post office. New polymer notes will replace the old notes.

10. Train travel cost is set to increase

The travelling cost for the train commuters is set to rise in 2022. Ticket prices for trains are set to go up significantly due to the rise in the retail inflation rate, which rose sharply in 2021. A big hike of around 3.8% is expected in line with the inflation rate during the year. However, the exact date and amount of the hike are not yet confirmed by the UK authority.