The financial shock expected in April is now imminent

Credit Action is highlighting nearly fifty changes to the UK’s benefits and tax system which are due to commence from April 6 th. The average loss to families will be £200 per year, though higher-earning families stand to lose much more. This £200 average loss follows a £680 average loss in January following previous changes, including an increase in the rate of VAT.

Some individuals will find themselves better off as a result of the changes. The lowest threshold for paying tax is to be increased from £6,475 to £7,475, which will mean that around half a million lower earners will be spared from paying any tax at all.

However, for the majority of individuals tax costs will surge. Every UK worker paying national insurance will see their employee contributions increase by 1% (with a 2% rise for higher earners). Three quarters of a million people will also pay tax at the higher rate of 40%, as the earnings threshold is to be reduced. The Institute of Financial Studies says that anyone earning over £35,000 will lose out.

Benefit changes will also be made. Many people will see reduced child tax credits and child benefit levels are due to be frozen for the next three years.

Accompanying these taxation and benefit changes are high levels of consumer price inflation, the threat of mortgage interest rate increases and (according to Vocalink) record low levels of pay rises throughout the UK.

Debt advisers in Scotland are now warning of increased debt distress amongst middle-earning families in the coming months. Many people are unaware of the looming changes in their circumstances or have failed to plan to adapt to the new circumstances. Squeezed disposable income will inevitably reduce the ability of Scottish families to service their existing debts, encouraging the use of additional debt solutions such as protected trust deeds.

Where finances are tight, families are encouraged to make a detailed list of their income and expenditure. If there is a deficit they should then look to any opportunities to increase their income or cut costs. If this cannot be achieved in a way which enables existing debt commitments to be manageable, they should promptly seek advice on the debt management remedies, such as a protected trust deed.

In Scotland such remedies are likely to include a debt management plan. In circumstances where debts have reached a more severe level it may be sensible to give consideration to a protected trust deed or even bankruptcy, both of which are likely to lead to a proportion of the unaffordable debt being written off.

If you’d like to receive any further information regarding a protected trust deed , or you’d like to communicate with people who has been through one themselves, our trust deed forum provides an excellent source of information.

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