During the last 18 months, stock market volatility and government borrowing have been well documented.

As part of the government’s plan to hasten the UK’s economic recovery while recouping its huge overspend, 2021 saw several threshold freezes and “stealth” taxes announced.

Here are three of the biggest threats to your clients’ personal finances in the year ahead.

1. Rising inflation

The rising cost of living saw inflation increase from 0.7% in April 2021 to a decade-high of 5.1% by November, more than double the Bank of England’s (BoE’s) 2% inflation target.

Supply chain shortages – in goods and personnel – have seen food and petrol shortages, as well as rising prices in costs for dining out, footwear, and now in the price of energy.

The situation is expected to get worse in April 2022 when, as well as struggling with rising fuel bills, households will also see the 1.25 percentage point rise to National Insurance also take effect. The rise – announced as a “Health and Social Care Levy” – is intended to support the NHS as it recovers from the burden of the pandemic.

The impact of rising inflation on your clients’ finances will be felt through increased household bills, but it could also be a threat to their cash savings.

While the BoE voted in December 2021 to increase the base rate from its historic low of 0.1% to 0.25%, savings rates are still a long way behind inflation. The savings that your clients hold in cash will be effectively losing value in real terms. This year might be a great time for clients to move into investing, whether that means increasing an existing portfolio or investing for the first time.

Investing increases the chance of inflation-beating returns while also increasing risk. We can help your clients understand their risk profile and their capacity for loss as they look to make their money work for them.

2. New Covid variants and the stock market

When the Omicron variant arrived in late November 2021, stock markets tumbled. The FTSE fell by 3.6% on Friday, 26 November, as iNews reported that around $2 trillion was wiped from global shares. By the following Monday, prices had largely recovered, only to crash again as fears of an Omicron lockdown grew.

While the market fall caused by Omicron failed to match the widely documented falls in the market at the outset of the pandemic, it does highlight the continuing link between coronavirus and your clients’ money.

As scientists discuss the possibility of a “Deltracron” variant, keeping track of the stock market will be important for your clients this year.

Investment should always be a long-term strategy and patience will be key. Ignoring the noise of stock market fluctuations and concentrating on individual goals is always the best option. We can help your clients to manage their portfolio, providing reassurance while also being on hand to rebalance if necessary.

3. “Stealth” taxes

The BBC confirms that coronavirus borrowing for the first year of the pandemic – April 2020 to 2021 – was £299 billion, the highest figure since the end of the second world war.

The government borrowed a further £136 billion between April and November 2021, with £17.4 billion borrowed in November alone. The Office for National Statistics (ONS) had previously revised down its borrowing forecast – to £183 billion – but some commentators expect this figure to be topped.

The upshot of large-scale borrowing during 2021 was the announcement of threshold freezes, “stealth” taxes and the suspension of the State Pension triple lock as the government looked to recoup its losses.

With some changes due to come into force in time for the start of the 2022/23 tax year, making the most of allowances as they exist now is vitally important for your clients.

Now is the perfect time for individuals to start getting ready for the end of the tax year.

Freezes to the Personal Allowance, the Lifetime Allowance and the Inheritance Tax nil-rate and residence nil-rate bands mean that stealth taxes could hit over the next five years. In April, the increase to National Insurance kicks in too.

We can help your clients understand the thresholds and allowances that apply to their savings and investments, helping to ensure that their finances are as tax-efficient as possible.

Get in touch

If you have clients who would benefit from help managing their finances during the difficult year ahead, please get in touch. Email enquiries@boolers.co.uk or call 0116 240 7070.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.