Lettuce prays for our personal finances

Prime Minister Liz Truss has failed to survive the Daily Star salad, but the lasting legacy of her short tenure has shattered the prospects for our personal finances.

If you haven’t seen the virus “Liz vs. Lettuce” Video livestream, it was a tabloid stunt poll that would go down first – prime minister’s term in office or a 60p salad from Tesco with eyes taped on, teeth and a blonde wig. After her, disco lights were added resignation on Thursday.

What might the next phase of this economic experiment mean for our money after a week in which tax, pension and energy policies were thrown into the political salad spinner?

Whoever follows her next week, the answer will be higher taxes.

Chancellor Jeremy Hunt needs to find £40bn in savings The extraordinary series of tax turns he announced on Monday – many of them were labor policy – will only get him part of the way there.

He’s promising “nothing is off the table” and is so keen that Halloween’s mid-term budget doesn’t come with any market-spooky surprises that some pundits are anticipating half the required savings come from tax increases.

His tearing up of Trussonomics ended plans for a 19p property tax rate, a lower corporation tax and reduced taxes on dividends.

Extension of the “stealth tax” of frozen income tax thresholds looks like a no-brainer. While Truss has proudly “delivered” on getting rid of the Social Security increase, Blick Rothenberg chief executive Nimesh Shah reckons there could be a reversal next April, where the 3.25 percent rate will be reinstated for higher and additional taxpayers becomes.

“It was too late to stop it this time but someone making £160,000 will still be around £1,100 better off next year because of this reversal from Nics,” he says. “If they want to support the weak, they have to find ways to pay for it.”

In any case, dividend tax rates will increase by another 1.25 percentage points next April. This, plus increases in corporate taxes, is a blow to directors of limited companies who pay themselves in Divis – a group largely excluded from pandemic support.

It’s also bad news for investors holding stocks outside of common tax wrappers. Income investors watched this week amid rumors of a fall in UK bank share prices windfall tax on profits – although Hunt did not reintroduce the banker bonus cap.

Bankers shouldn’t get too excited – there’s still a chance of another reversal by October 31st!

Retirees don’t bet on Truss’ dying promise this week Honor the triple ban as inflation flooded over 10 percent. Funding will cost around £9.5bn, taking the full state pension to over £10,000 from April next year (assuming no reversal).

While retirees are a constituency the Conservatives cannot afford to upset, there have been no such promises to increase benefits. With food price inflation at 15 per cent, this comes at odds with ministers’ repeated pledges to “protect the most vulnerable” if prices soar.

The plans to unfreeze the energy price guarantee next April were spot on – I did long argued This costly support should never have been extended to the wealthy. But not only beneficiaries suffer from it.

The combination of £4,000 utility bills and higher rent or mortgage payments could put the finances of millions of full-time workers in a very vulnerable position, but we don’t yet know where the Treasury Department’s limit will be.

The lost tax savings from Hunt’s about-faces are pretty much meaningless to most; It’s the rising mortgage rates that are really messing people up financially.

If you work in an office, it should now be clear who the winners and losers are among your peers – mortgage fixes are all everyone wants to talk about.

This Roll out fixed price offers will now have a hard time doing much better than 6 percent on a new five-year fix. With a £250,000 mortgage, the ‘payment shock’ could be £500-600 a month and nearly 2million fixes end next year.

When the next election comes up, we might have one case crash and to manage negative equity. Falling prices affect loan-to-value ratios and make debt restructuring even more expensive for borrowers.

At least the killing of Trussonomics on Monday caused UK Gilt yields (and the swap rates used to assess mortgage rates) to drift back in the right direction. Mortgage brokers expect interest loosen something in the coming weeks if Gilt interest rates remain stable, but the days of cheap home loans are over.

Financial markets have remained resilient following the PM’s resignation – so let’s check something here while we wait for the next leader to emerge.

Gilt movements also pose a silent threat to people with defined contribution pensions.

Defined benefit (final salary) pension schemes have been in the headlines thanks to their risky derivative-linked hedging, but the reality is that well-funded schemes are unlikely to fail to pay their retirees.

However, anyone with DC workplace programs would be wise to review their exposure to gilts and possibly add a few years to their expected retirement age.

“Let’s say that on day one of their new job, an ambitious 25-year-old estimates his retirement age at 50 or 55 on his company pension form,” says David Hearne, Chartered Financial Planner at FPP. “That means that after 40, they could be in danger of becoming ‘lifestyled.'”

Lifestyle – the gradual move away from stocks towards government bonds and cash as retirement approaches – is a legacy of the days when all retirement savers had to buy a pension. Gilts were considered a safe haven, but not only do you risk potential stock returns, you also risk losing capital.

Another thing to watch out for is cash. With so much uncertainty, everyone needs an emergency fund. However, the accepted benchmark of saving three to six months on living expenses also needs to be adjusted for inflation – in tough times you may need more money than you think.

The good news is that ahead of the expected rate hike in November, there will be plenty of new savings propositions springing up – and I expect more to come.

Barclays customers with up to £5,000 to protect can earn 5 per cent interest on the new Rainy Day Saver (you’ll need to join the Blue Rewards scheme, which is cost-neutral provided your account has two direct debits).

Nat West, Lloyds and Yorkshire Bank are all offering 5 per cent on their monthly regular savings (equivalent to 3.2 per cent spread over the year).

It’s less than inflation – but it could be a better rate than your mortgage.

If you’re thinking of paying a lump sum before your fixed income deal ends, this could be a way to get some interest arbitrage before our outgoing PM turns into a pumpkin.

Claer Barrett is the Consumer Editor of the FT: claer.barrett@ft.com; Twitter @Clearb; Instagram @Clearb

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