Workers will need a pay rise of about 10 per cent this year just to tread water. From April 1, a combination of tax increases, frozen tax thresholds and inflation that is due to hit 7 per cent will leave households already feeling the pinch feeling even poorer.
An earner on £50,000 will now need £55,400 to have the same amount of disposable cash and spending power they had last year, according to the wealth management firm A J Bell. Someone on £25,000 would need a £2,400 pay rise up to £27,400and someone on £80,000 would need £82,800.
“Usually inflation takes a toll slowly and quietly, but the vast leap in the energy price cap means it’ll hit us square in the face at the start of April,” said Sarah Coles from the investment platform Hargreaves Lansdown.
“At the same time, we’re going to face higher tax bills, so if pay rises haven’t kept pace, we’ll all feel worse off next month.”
Should you ask for a rise?
Employers expect to award pay rises of 3 per cent in 2022, according to a survey by the Chartered Institute of Personnel and Development. This is the highest level in at least a decade but 7 per cent lower than you would need to put you in the same financial position as this time last year.
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“Asking for a pay rise can be challenging,” said Gaelle Blake from the recruitment consultancy Hays UK and Ireland. “But the more research and preparation you do, the more likely that the outcome will be positive.”
If you cannot get a pay rise, you may consider moving jobs. Workers who change employers typically get a 7.3 per cent boost to their earnings, according to Indeed, a jobs website. The number of people out of work is declining. The unemployment rate was estimated to be 3.9 per cent for November 2021 to January.
Awful April
Next month is going to be tough because of the double whammy of inflation and increased tax. The new health and social care levy will be introduced on April 6.
Employees will pay 13.25 per cent national insurance on anything they earn between £9,880 and £50,270, up from 12 per cent, and 3.25 per cent on anything they earn above this level, up from 2 per cent.
The self-employed will pay 10.25 per cent on earnings between £9,880 and £50,270, up from 9 per cent, and 3.25 per cent on anything above this, up from 2 per cent. An employee on £30,000 will pay an extra £214 a year, taking them to a total of £2,666, according to A J Bell. If they earn £50,000 pre-tax, their contributions will rise £505 from £4,852 to £5,357.
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Employers will also have to find an extra 1.25 percentage point to add to the national insurance they pay on their workers’ earnings.
Pensioners are not liable for national insurance but from April 2023, the 1.2 million people who are still working over the state pension age of 66 will have to pay the 1.25 per cent social care levy.
Tax on dividend income is also rising 1.25 percentage points, hitting small business owners who operate as limited companies and pay themselves in dividends, and pensioners who use dividends to supplement their retirement income.
Basic rate taxpayers will pay 8.75 per cent tax on dividends, higher rate taxpayers will pay 33.75 per cent and additional rate taxpayers 39.35 per cent.
