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Time is running out to avoid an April income hit of up to £2,000

Tax
Tax

Households are about to be hit by a flood of bill increases which will leave families more than £1,000 worse off at the same time as Jeremy Hunt slashes perks for investors and forces more people to pay top-rate tax.

The beginning of April marks higher prices for water, energy, broadband, mobile contracts, council tax and NHS prescriptions as providers use historically high inflation to squeeze already stretched households.

Unlike last year, bill payers will also go without hundreds of pounds in government support to offset energy and council tax.

It comes ahead of the new tax year next week, when dividend and capital gains tax allowances will be halved and the 45pc rate of income tax will kick in for earners at £125,140, instead of the current £150,000 threshold. The tax raid will be exacerbated by a deep freeze on the personal allowance and lower tax thresholds.

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Combined, the tax raid, bill increases and withdrawal of government support will leave the average worker earning £150,000 more than £2,000 worse off, according to analysis by AJ Bell.

Someone earning £33,000 a year will be more than £1,000 out of pocket.

It may be April Fool's Day on Saturday, but higher costs coming down the track are no joke. But by taking action now, you could save hundreds of pounds on your utilities and tax bills.

Broadband and mobile: +14.4pc

Millions of broadband and mobile customers with BT, Vodafone, EE, Virgin and TalkTalk have been hit by an inflation-busting price rise of up to 14.4pc this weekend. A household paying £45 for a monthly broadband package will pay an additional £6.50 a month, or £78 a year.

Some customers with a mobile phone deal with O2 and Virgin will have seen the part of their plan that covers minutes, texts and data but not the physical handset itself, jump by more than 17pc. An O2 customer paying £70 a month for their mobile contract will have shouldered a £145 annual increase in their bill, according to analysis by AJ Bell.

Under current rules, broadband providers are allowed to use the Consumer Prices Index measure of inflation as a basis for price rises, plus an extra three 3.9 percentage points.

If you are out of contract, negotiating with your provider and threatening to move your business elsewhere can yield big savings. Broadband customers can save an average of £43 a year by haggling, according to recent research by consumer group Which?.

Likewise, switching providers can save you hundreds of pounds. Which? found TV and broadband customers saved £162 by switching providers.

But beware – inflation-beating increases are often set out in broadband and mobile phone contracts, so bill payers switching mid-contract may trigger hefty charges by leaving the agreement early.

Ernest Doku, of price comparison site Uswitch, said: “Even if there is a charge to switch, this may still offer you a saving in the longer term.

“Mobile customers should also consider their mobile data usage as many pay for more mobile data than they actually need. If you regularly have data left over at the end of the month, consider reducing the data in your plan to save money.”

Council tax +5pc

The average council tax bill will exceed £2,000 for the first time this year after local authorities in England were granted permission to raise levies by a maximum of 5pc without holding a local referendum.

Four in five local authorities have opted to increase their rates by the maximum amount from Saturday, adding £99 to the annual bill for a typical Band D rated property. Last year the Government handed a £150 council tax rebate to households, but that has not been repeated.

Levies are based on property valuations made in 1991, so it is worth checking if you are overpaying.

Almost 50,000 people in England and Wales queried their council tax bills by officially challenging the Valuation Office, the department that oversees local levies, in 2021-22. Close to one in three of them last year won a discount.

But be warned: some challenges backfire and can result in properties being placed in a higher band. It can also result in houses on the same street being saddled with higher council tax.

Water bills +7.5pc

Water and sewerage bills in England and Wales will rise by 7.5pc this year – by £31 to £448, according to trade body Water UK. Unfortunately there are no competitive rates for water suppliers because your supplier depends on where you live and households cannot switch.

But you can monitor water usage to reduce your bills. Hot water contributes £228 to the average household energy bill, according to the Energy Savings Trust.

Mr Roberts said households with low levels of water usage could also consider switching to a water meter – currently used by roughly half of all homes in the UK.

He said: “A water meter charges depending on how much water you use instead of a fixed rate, so if your household is planning to take measures to reduce usage it could be worth considering.

“But bear in mind that if you have guests staying or a larger household your usage and bill is likely to be higher and a meter is best for a household with minimal water usage.”

Stamps +16pc

The price of a first class stamp will rise from 95p to £1.10 on April 3, an increase of 16pc – well-ahead of inflation. The cost of a second class stamp will increase from 68p to 75p.

Saturday is the last day that stamps can be purchased at their current price before Post Offices close on Sunday. But if you are planning to stock up, be sure to purchase the new barcoded stamps. The old non-barcoded stamps are only valid until July.

Prescriptions +3.2pc

As of Saturday, the cost of NHS prescriptions has risen by 3.2pc after prices were frozen in 2022.

The cost of a single prescription has jumped by 30p from £9.35 to £9.65 and the price of a three-month certificate has increased by £1 to £31.25. A 12-month certificate has increased by £3.50 to £111.60.

Some patients – including those aged under 16 or 60 and over and certain pregnant women – are eligible for free prescriptions, so be sure to check your entitlement.

Energy bills

The Government’s £400 energy bills discount paid to all households in monthly instalments of £66 and £67 has now ended. Most will see an increase in their gas and electricity costs despite the energy price guarantee being maintained at its current level of £2,500 until June.

Falling wholesale prices should soon filter through to suppliers and households and experts have forecast competitive fixed-rate tariffs will return by July. It will pay to watch changes in the energy market closely this summer and strike when the right deal comes along.

But despite falling wholesale costs, energy bills for the average household will still be significantly higher than before the crisis – the energy price cap was £1,138 in September 2021. Simple yet effective household steps can help soften the blow. 

Turning the thermostat down by just one degree could reduce bills by as much as 10pc, according to the Energy Saving Trust.

Les Roberts of Bionic, a switching service, said: “If you are on a 'time of use' tariff or off-peak tariff then prices will be lower at times when the grid is under less pressure and demand is lowest, which tends to be between 10pm-8am.

“Costs can sometimes be 50pc lower during these hours so it can definitely be worth doing your laundry load overnight and taking advantage of these off peak prices.”

Tax

Savers have just days to protect themselves from April’s tax trap. From April 6, the threshold at which capital gains are taxed will more than halve from £12,300 to £6,000, and fall again to £3,000 from April 2024. The dividend allowance will drop from £2,000 to £1,000, before falling to just £500 next year.

Laura Suter, of AJ Bell, urged investors and savers to shelter their money in Isas and pensions to beat the tax grab.

Up to £20,000 can be sheltered in an Isa each year tax-free and most people can pay up to £40,000 into their pension each year while benefiting from tax relief, although this will rise to £60,000 in the coming tax year.

Ms Suter said: “Anyone can carry forward unused allowances from the previous three tax years, as long as they don’t pay in more than they earn in a single year.

“To help with CGT bills, ‘Bed and Isa’ transactions allow investors to realise gains up to the current allowance and instantly buy them back in your Isa.

“This ensures you take maximum advantage of the current £12,300 tax-free limit while it lasts  and shelter investments from any future tax liability.”

Making pension contributions can also help lower your income tax bill. Now that the top rate, 45pc, of income tax will begin at £125,140 someone earning more than the new threshold can make extra pension contributions to bring their taxable income back down to the 40pc rate.