How the spectacular U-turns over tax will affect millions of people - Sarah Coles

Of course, then the revolving door on Number 10 started spinning, but for now, given that Hunt is spearheading a new approach to tax and spending, it’s worth getting to grips with what this might mean for you. And at a time when the only constant is change, we need to consider how to cope with this state of flux too.

Impact of U-turns

On Monday this week we saw a spectacular U-turn on most of the tax cuts that remained on the table. This wasn’t an enormous surprise. It’s what the markets needed to hear. But it will have an impact on millions of us.

The decision not to cut the basic rate of income tax to 19p is perhaps one of the easiest to adapt to, because it’s the absence of a cut rather than a hike, so it won’t leave you with a new hole in your budget. At the same time, the National Insurance cut is going ahead – helping to offset the impact of frozen income tax thresholds.

Axing the cuts to the dividend tax rate will hit anyone with investments outside ISAs and pensions whose dividends breach the annual allowance. It’s also horrible news for people running their own business who pay themselves in dividends, for whom it will feel decidedly unfair. This cut was expected alongside matching cuts to National Insurance, but as the NI cut has started its path into legislation and the dividend tax cut hasn’t, only the NI cut will go ahead now - so those who receive dividends will end up at a disadvantage.

For an awful lot of people, however, the biggest blow is that fact that the energy price guarantee will be scaled back – and the current arrangement is only guaranteed to April. A new less generous approach will kick in from then - targeting businesses and individuals who need help the most and leaving everyone else to fend for themselves.

Targeting

This idea of targeting support - so only those who need help the most will get any - is a cornerstone of the new approach, which again differs dramatically to Hunt’s immediate predecessor. Kwasi Kwarteng’s plan was to give everyone more money in their pockets in the hope it ‘trickled down’ into every corner of the economy and spurred growth. Hunt, by contrast, is all-too aware of the risks this tax cut bonanza posed - both to market confidence and to inflation - so closer targeting of government support is his solution.

If this brings the help that vulnerable people desperately need, it would be hugely welcome. However, at the moment, we can’t be certain, because at the time of writing, with the next Prime Minister yet to be selected, it’s difficult to put much faith in announcements about inflationary uplifts to benefits and pensions

Liz Truss reaffirmed her commitment to the triple lock on Wednesday – which uprates the state pension in line with whichever is highest of 2.5%, CPI inflation and wages.

It means that as things stand, state pensions will rise 10.1% in April. We will have to see whether this particular pledge stands the test of time.

We’re also waiting to hear whether working age benefits will rise with inflation too. When you’re relying on state support to make ends meet, life is uncertain enough. Given that those benefits were frozen for years, it’s also makes life incredibly difficult. So it’s horrible that so many people whose finances are on a knife edge have to have to wait to hear their fate.

The other area of uncertainty surrounds where the government chooses to draw the line in terms of support for energy bills. If it doesn’t extend help to average earners, an awful lot of people who are only just clinging onto their monthly budget with their fingernails will be forced to find a huge chunk of extra cash each month, with nowhere to turn for help.

Protect yourself

It’s difficult to see how the government could choose to overlook any of these groups, especially under the banner of Compassionate Conservatism. However, what the last few weeks has shown us is that nothing is guaranteed until it has actually happened – and even then it might only be a temporary measure.

Unfortunately, there’s very little we can do to control any of these things, so the best way to protect your finances is to try to build in as much flexibility as possible. At the moment, this is far easier said than done, but in an ideal world, if you have an emergency savings safety net, and can cut your spending enough to create a small buffer each month, it will mean you have something to fall back on when prices rise even further, or the government changes tack again.

If that requires the kind of stretch your finances can’t manage right now, then it’s worth drawing up a budget, and saving it somewhere handy. This will show you exactly what you’re spending – and on what – each month. It means that if your income falls or your expenses rise, you can make a positive decision where to cut back immediately – so you don’t run out of money before the end of the month.

Buyer demand down 15% after mini-budget

The property market is the kind of momentum-driven super tanker that takes far more than a fortnight to execute a major manoeuvre. However, in the two weeks after the mini-budget, the propellers slowed significantly, and demand from property buyers fell 15%, according to Rightmove.

It hasn’t sunk prices: with the average asking price hitting a new record of £371,158 in September - up 0.9% in a month. However, the market is looking less robust on a number of fronts.

Annual house price growth has slowed, with demand down from last year. Meanwhile, the average number of properties on agents’ books has risen to 50, and there have been small rises in a number of measures from the average time it takes to sell (up to 37 days), to the proportion of property prices being cut back (up very slightly to 23%).

There has been an awful lot of water under the bridge in the short time since the mini-budget, and the current Chancellor has unwound most of the tax breaks that bond investors were so worried about, so there’s a chance that mortgage rates could back off from some of the peaks we’ve seen recently.

However, with the Bank of England warning of major rate hikes in November, it’s unlikely to be much of a reprieve.

It all adds up to a risk that we could see significant house price falls as we head towards the end of the year and into 2023.

It means anyone considering buying right now, needs to be absolutely certain they can afford their new home, and that they’ll be in it for long enough to ride out what’s likely to be a very difficult period.

Sarah Coles is a senior personal finance analyst and podcast host for Switch Your Money on Hargreaves Lansdown