The cost of living crisis is getting worse, here's what to do about it
Nicole Garcia Merida looks at ways to lessen the effects of the cost of living crisis.


Inflation in the UK is running at 6.2% a year (if you use the consumer price index – CPI), or as much as 8.3% (judged by the old retail price index-based measure that used to form the basis of the Bank of England’s inflation target). Unfortunately, this month the cost of living squeeze is only set to get worse. Here’s what’s changing – and what you can do to lessen the impact.
The deep freeze on allowances
The personal allowance (the level of earnings at which you start paying income tax) will be held at £12,570 until 2026, while the higher-rate income tax threshold will be frozen at £50,270. This is “probably the biggest change coming in from 6 April”, says AJ Bell. Usually these thresholds would increase in line with inflation “to offer some protection to taxpayers”, but it’s proved an irresistible stealth tax for
the chancellor.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Similarly, on the asset taxation front, the capital gains tax (CGT) allowance remains frozen at £12,300 until 2026, while the inheritance tax threshold is also staying at £325,000, which will “start to bite into estates” that grow in value over the next four years. While the chancellor did announce plans to cut income tax from 20% to 19%, this is little comfort as it’s not due until 2024.
The health and social care levy
The threshold at which national insurance (NI) starts to be paid will rise to £9,880 from £9,568 in April, and then to £12,570 (matching the personal allowance) in July. But from 6 April most workers will also start to pay the health and social care levy, which is an increase of 1.25 percentage points on NI contributions, driving rates from 12% on earnings up to £50,270 and 2% on anything above that to 13.25% and 3.25% respectively. Taking the changes to the NI threshold from July into account, a worker on £30,000 will be better off overall, paying £2,309 a year in NI contributions, down £143 from the current £2,452.
However, someone earning £50,000 will pay £4,959, up £107 from their current contribution of £4,852.
Investors should note that dividend tax is rising along with the NI increase, which means basic-rate taxpayers pay 8.75% on dividend income; higher-rate taxpayers 33.75%; and additional rate 39.35%.
State pensions and energy prices
Households already struggling with rising costs will also have to deal with an increase in the energy price cap, which is a regulatory cap on the amount per unit of gas and electricity that utility companies can charge. Based on average household usage, it is rising by an eye-watering 54%, from £1,277 to £1,971 from 1 April, although of course that will vary depending on your individual usage.
The regulator is playing catch-up with soaring energy prices, and there’s no guarantee that October (the next time the price cap changes) won’t see another significant increase.
As for pensions, the state pension will rise with the rate of inflation (as measured by CPI), but that’s based on the figure from September 2021, which means an increase of just 3.1%. Meanwhile, the pensions lifetime allowance (LTA) – the total pension pot you can accumulate over a lifetime before being taxed at 55% on the excess – will be frozen at £1,073,100 for another four years.
Practical solutions
There are few government measures to help, although do check your council tax band – houses in bands A to D in England will get a £150 rebate on their council tax bills in April. If you pay by direct debit, this will be paid into your account directly. Otherwise, contact your council. Also ensure you use your individual savings account and pension allowances this year – at least those shield you from CGT and dividend taxes.
SEE ALSO:
The UK jobs market is still red hot – but will it last
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She has previously worked for MoneyWeek.
-
Why one in ten retirees are cutting back on gifting
More than one in 10 retirees plan to cut back on gifting to children and grandchildren, despite concerns we could see inheritance tax changes in the Autumn Budget
-
Retail investors pull £1.8 billion from equities, but Europe bucks trend
The latest data from the Investment Association shows July was a bad month for equity funds, with outflows doubling compared to the month before, but Europe was a bright spot
-
What are wealth taxes and would they work in Britain?
The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?
-
Self-employed? Start saving for your pension now
Britons who are self-employed have neglected to build up their retirement fund. They must act now
-
‘My NS&I one-year British Savings Bond is maturing – what should I do with my savings?
Thousands of savers will see their fixed-rate savings accounts mature next month. We consider whether you should stick with NS&I or move to a competitor
-
How to pay in a cheque
Receiving or writing a cheque has become much less common in recent years as instant bank transfers have grown in popularity. Amid widespread bank branch closures, we explain what to do if you get a cheque, and how you can pay one into your bank account.
-
The most and least expensive countries to be an expat in 2025
With some Brits fleeing the country to avoid seemingly ever-increasing taxes, we look at the most and least expensive countries to emigrate to.
-
Why is Britain's industrial base crumbling?
Opinion More and more factories in the UK are closing, and the government doesn’t seem to care. What’s going on?
-
Scotland's former first minister Nicola Sturgeon leaves behind a toxic legacy
On the left, Nicola Sturgeon is seen as something of a political hero. That makes sense… but only if you exclude her actual record in office
-
Why strong currency is the key to upward mobility
Change your social status and your life by saving money in strong currencies, says Dominic Frisby