Depending on their personal circumstances, UK consumers have been left either reeling or rejoicing in the wake of George Osborne’s Budget.
The shockwaves reverberating through households have rippled into business, with retailers in particular left pondering whether they will see a drop-off in trade, or whether strategic changes will be required to keep hold of their target customers.
For the country’s higher earners, the threshold for paying the highest income tax rate of 40% will be raised from £42,385 to £43,000. The Government said the move could save middle-class families up to £1,300 a year.
But for those earning in excess of £100,000 per year, the personal allowance is gradually phased out. It means earnings between £100,000 and £122,000 will be taxed at 62% when income tax and National Insurance are taken into account.
Most eyes though have been firmly focused on the impact on lower earners, for whom the introduction of a compulsory living wage is a clear winner. The Chancellor claimed the headline-grabbing policy will give a pay rise to 2.5 million workers.
Those currently earning the minimum wage of £6.50 an hour will amass an annual pay packet of £11,863, based on a 35-hour working week. The introduction of the £7.20 living wage next April will see that increase to £13,140 – a healthy increase of almost 11%.
They will also pay less tax on those wages when the tax-free personal allowance is raised from £10,600 to £11,000 in April.
But experts say hundreds of thousands of UK families at the lower end of the pay scale will still be left worse off by £12bn-worth of cuts in the welfare budget, which will be made by 2020.
Tax credits will be limited to the first two children only, while there will be a four-year freeze on Job Seeker’s Allowance and Employment and Support Allowance.
The current benefit cap, which limits payments to £26,000 a year, will be slashed to £23,000 in London from April 2017 and £20,000 elsewhere.
Institute For Fiscal Studies director Paul Johnson said tax credit recipients in work will “unequivocally” be made “worse off” because the increase in wages will not make up for losses in benefits.
PwC retail consultant David Oliver agreed that “poor families with children” will suffer most, but said childless people currently on minimum wage are likely to plough cash back into retailers with a lower price point.
“Unemployed people with children or people on low household income with children are the big losers,” he said.
“If there is one group that’s going to start spending more it would be people without children who are currently on the minimum wage, whose incomes will go up significantly.
“People on low incomes will spend all or most of the increase in cash they receive and quite a lot of that will go to retailers, because the lower down the income scale you go, the greater proportion of any extra income gets spent in retail stores.”
But money saving expert Martin Lewis insisted there is not much scope for those earning a minimum wage to increase their retail spending.
He said: “You have to assume that these people at the lower end are already shopping in the Poundlands and Poundworlds, and if you look at the food world I think people will be even more careful with what they buy.
“It’s quite difficult to discern how that’s going to have an impact on retail and at that lower end – I’m not quite sure how much room there is for people to shift their spending habits or economise.
“These are people that are already scrimping and saving to try and make ends meet. Cheap meals and ready meals will become more popular because people have to eat. Grocery shopping will become part of their discretionary spend and they won’t have much of it.”
Growth of couponing
Lewis added that retailers may be forced to reassess their couponing strategies in order to attract lower-paid workers who are worst affected by the Budget into their stores.
He said: “We are seeing the continued growth of couponing in the UK and this will push more people towards using them. If I ran the marketing department of a big supermarket or retailer and wanted to bring people in, I’d be very aware of what my couponing policy is and try to encourage people in with coupons. It does work and using them to save cash will become a growing habit.”