Your household expenses and the budget

Despite reports today that the UK has entered deflation, the reality for many householders in recent months has been a significant hike in the cost of living.

If you are concerned about growing household expenses, here are some things to look out for in today’s budget speech from Chancellor Alistair Darling:

1. An increase in VAT. The rate of VAT is scheduled to return to 17.5% in December 2009, but some analysts are predicting an increase beyond this to 18 or even 19%. If this happens, household will see an increase in most household expenses, although food, books, newspapers and children’s clothes will remain VAT exempt, and fuel bills will continue to be taxed at 5%.

2. Car scrapping incentive scheme. In a move to get greener cars on the roads, Mr. Darling is expected to announce a £2,500 bonus for anyone with a car over nine years old who trades it in for a newer, greener model. This could represent a significant boost for householders, but it is estimate that it will cost the treasury around £250,000.

3. Tax increases on alcohol and cigarettes. For those who like a smoke or a drink, the budget isn’t likely to be good news, with Mr. Darling likely to announce a hike on alcohol and cigratte taxes. According to the bookies, the odds of cigarettes going up by at least 12p or are 6/4, while the odds of beer going up more than 5p per pint is 6/5.

Meanwhile, Sharon Bratley, chartered financial planner at Fairinvestment.co.uk said:

“To make a real difference to these people, Darling would either have to make a significant reduction in taxes, guarantee all UK jobs, or hand out money on the streets to those who need it! Unfortunately the reality of this Budget will tell a different tale, and instead of helping people who are struggling to keep their heads above water, it is likely to add to their problems.

“Public debt and spending has spiralled out of control, and the only feasible way to end this is to increase taxes in some way, and whether it will be alcohol, petrol or cigarettes, any increase is bound to have an adverse affect on households.”