Energy rescue package: how does it work?
The Government has announced a wide-ranging and costly energy bills rescue package, called the Energy Price Guarantee, to protect households from the worst of price rises this winter.
Energy bills were set to rise by about 80% in October, having already soared in previous updates to the price cap by energy regulator Ofgem.
Instead, the Government has moved to limit that increase.
How will my bills change?
Energy bills will still likely rise for households, but the worst effects have been dampened by the rescue package.
For a typical household, the annual bill for energy will come in at around £2,500 from 1st October. This is however not a hard limit on energy costs.
The way the cap works is as a limit on the price you pay per kilowatt hour (kWh) of gas and electricity. If you continue to use a lot of kWh to heat and power your home, your bills can still come in higher than the £2,500 ‘cap.’
With the way the cap is structured, there is still an incentive for households to conserve the amount of energy they use as this will still reflect in their monthly bills.
If you’re keen on cutting your usage and therefore bills, it’s really important to submit regular meter readings to your provider and speak to them if you believe your direct debits or other payments are set too high.
The guaranteed level was initially set to last for two years. But thanks to market disruption caused by Government spending plans, the new Chancellor Jeremy Hunt rolled the scheme back to just six months. Hunt has committed to review and update the scheme from April 2023, but it is unclear how the scheme will change at that point.
In terms of how much it will cost the Government, little concrete information is known as it is completely reliant on the market price of energy in the next six months.
Estimates range from £60 billion to around £120 billion, depending on what happens to the price of natural gas. Once the Energy Price Guarantee expires, bills are expected to rise again to around £4,347 per year.
Other help
There is still other help being made available to households through measures previously announced by former Chancellor Rishi Sunak.
This comes in the form of an energy bill discount which will be paid to households from October. This is worth £400 and will be paid monthly over winter automatically to bill payers. There is no need to apply as it will be directly applied and is a universal payment.
The Government is also providing cost-of-living payments to households on means tested benefits, which includes Universal Credit, Pension Credit and Tax Credits. Those households will receive a £650 payment this year, made in two instalments.
Those on disability benefits will also receive a payment of £150, but if you’re eligible for this, it likely already arrived in September.
Older people can also claim the Winter Fuel Payment – which will pay between £250 and £600 depending on your circumstances. Those who receive State Pension or other social security benefits (not including Adult Disability Payment from the Scottish Government, Housing Benefit, Council Tax Reduction, Child Benefit or Universal Credit) will receive the help automatically.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
What does the falling pound mean for my money?
The pound has fallen considerably in recent weeks and months. But what does that mean for your finances?
Perhaps the most well-reported fall was the sudden plunge on 26 September, which was largely a response by financial markets to the ‘mini budget’ from new Chancellor Kwasi Kwarteng.
Financial markets, in a signal of lacking confidence in Kwarteng’s plans, sold the pound to its lowest ever level – worth $1.03 in dollar terms. It has however rallied somewhat now.
However, there is a longer-term trend at play with the weakness of the pound.
In the past 12 months the pound has declined from a value of around $1.35 to its current level ($1.13 at the time of writing) – representing a 16% decline.
This is mainly down to major global macroeconomic trends affecting the value of the US dollar. Around the world as equities, bonds and other assets struggle, investors look increasingly to just holding dollars.
The main reason these investors look to hold dollars is that the US central bank, the Federal Reserve, is seen at the front of hiking interest rates and reducing the amount of dollars flowing around the global economy through ‘quantitative tightening.’
Thanks to this trend, the pound is among nearly all other major currencies in losing value to the dollar.
But while these are complex trends affecting the whole world, there are some specific effects on our own finances in the UK. Here are the major impacts.
Inflation
One of the least easily-noticed, but biggest issues for a weaker pound is that it will cause more inflation – despite the Bank of England hiking rates to quell rising prices.
This is because the UK economy is highly dependent on imports to supply households with the everyday goods they need.
When the pound falls in value against other currencies, especially dollars for which many major global commodities such as oil are priced, it reduces the nation’s purchasing power.
This makes these products more expensive for us to consume. Although in practice it is difficult to immediately notice the effect, in the long term it will keep the overall level of inflation higher than it otherwise would have been.
Travel
Perhaps the opposite of the above effect – a weaker pound means it is more expensive for people to travel abroad.
When visiting other countries, travellers and holidaymakers will find buying anything they might spend on more expensive as their pounds don’t go as far as before.
This will have varying effects depending on where they go. Europe might not be as much as a stretch thanks to the Euro falling, but a trip to DisneyWorld in Florida might quickly become prohibitively expensive for some.
There are some quick and easy ways to mitigate the worst of foreign exchange rates for holidaymakers though. The most important is to avoid exchanging physical currency at Forex shops, or even at places such as the Post Office. These companies routinely offer foreign currency at extremely high markups compared to the basic Forex conversion rate.
The best solution to this is generally to use new digital-only banks such as Monzo, Starling and Revolut, who offer much better exchange rates and fees for spending abroad and cash withdrawals than old-fashioned High Street banks do.
Investments
A weakening pound also affects investments – but the consideration here can be more complex.
Holders of UK companies that earn in the UK might find that their stocks are worth less as a result of the stock being priced in pounds.
But many major UK firms actually derive much of their incomes from abroad. With a weaker pound this is a good thing for those companies as they will be able to import more valuable foreign incomes. It also makes UK goods sold abroad more competitive to buy, boosting that income for those firms.
Buying companies or other assets denominated in dollars will become more expensive. But the relative value of those assets for those already holding will be a bonus as their sterling value appreciates relative to dollar values.
The effect of pound weakness for investments is complex though and there’s no unifying theme, as individual wealth structures will be impacted differently.
If you would like to discuss any of the themes in this article, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
Mini-budget 2022: market and political turmoil cause major Government reversals
Extraordinary events in the UK throughout September and October have seen the Government announce a ‘mini-budget’ – the contents of which have now largely been scrapped.
Prime Minister Liz Truss, and her first Chancellor Kwasi Kwarteng, announced a series of tax-cutting measures on 23 September.
The Chancellor in his statement said the changes, which were far from mini in reality, were designed to kick-start the economy and provide ‘supply side’ reforms to help businesses grow and let households keep more of their money.
Kwarteng’s announcements were far ranging and were described as one of the most dramatic shifts in policy from the Government since the infamous 1972 Budget from then Chancellor Anthony Barber.
But markets, the media and politicians reacted extremely poorly to the measures which were posing potentially hundreds of billions of unfunded changes to Government policy.
Despite political opposition to the measures, what really killed the mini-budget was the reaction by the bond market – which ultimately would have been asked to fund the measures through new Government debt issuance.
Where are we now?
Liz Truss was forced to sack her Chancellor Kwasi Kwarteng on 14 October. This is because the Bank of England had implemented a special program to support the bond market and protect certain pension funds from running out of cash.
Bank of England Governor Andrew Bailey set a deadline for the scheme of 14 October. This forced Liz Truss’s hand and triggered a series of reversals which initially saw the Government ditch plans to scrap the 45p income tax band, then reverse plans to hold corporation tax at 19% instead of a planned rise to 25%.
Once Truss sacked her Chancellor Kwasi Kwarteng, Jeremy Hunt – a former leadership candidate and health secretary – was brought in as the new Chancellor to steady the ship of Government.
On 17 October, Chancellor Hunt announced the effective scrapping of all the measures set out in the mini-budget. The only surviving measures were the reversal of the National Insurance hike and the stamp duty cut – as both those measures had already been enacted (more on those below).
But the planned cut in the basic rate of income tax to 19% has been binned. When he was Chancellor, Rishi Sunak promised this change in 2024, but Hunt, keen to reassure markets and return confidence to the Government’s economic policies, has scrapped the tax cut completely.
As for other measures, the alcohol duty cut will no longer go ahead, IR35 freelance tax reforms will take place instead of being scrapped, and the Energy Price Guarantee will no longer run for two years (more on that here).
The retreat and reversal of policies has left major questions over Liz Truss’s leadership. Jeremy Hunt was compelled to go further than simply cancelling the changes because the Government had caused a major confidence loss in markets that effectively were on the hook to pay for the measures.
This comes against a backdrop of tough and volatile market conditions, monetary policy tightening and ongoing high inflation. Together, this makes the mini-budget’s measures extremely unpalatable to investors, even if these measures were designed to promote growth and help households in the UK.
A couple of measures have survived however, and these are detailed below.
National Insurance and dividends
The 1.25% hike in National Insurance payments has been fully scrapped, and this will take effect from 6 November. According to the Government, the average worker can expect to save £330 in NI payments in 2023/24.
Dividend tax will be affected by the cut to National Insurance, effectively taking the rate back to where it was before it was hiked in the first place.
Dividend tax rates will be reduced to 7.5% for basic rate payers, 32.5% for higher rate payers and 38.1% for additional rate payers. All of this will take effect from 6 April 2023.
Stamp Duty
Kwasi Kwarteng also made significant changes to the way in which stamp duty works.
No one will pay stamp duty on a property worth less than £250,000 while the first-time buyer (FTB) threshold has risen from £300,000 to £425,000. The maximum level of FTB relief will also raise from £500,000 to £625,000.
These changes were made effective immediately from 23 September.
If you would like to discuss any of the themes raised in this article, please don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
Working for longer? Key rules to consider
The number of over 65s has reached a record level, according to new data from the Office for National Statistics (ONS).
The number of over 65s now in work stands at 1.468 million in April to June 2022, up 173,000 from the previous quarter (January to March 2022).
As the cost-of-living rises, and markets turn volatile, more older people are returning to work in order to fund their everyday lives.
But there is also a longer-term trend at play – the number of over 65s in work has risen steadily since 2014 as per the ONS figures.
But what are the pitfalls of working past ‘retirement’ age? The truth is that the line between working age and retiring is definitely blurring, but there are still some important aspects to consider if you’ve decided to keep working for longer.
Here are some key considerations with regards to wealth and tax.
Money Purchase Annual Allowance
The Money Purchase Annual Allowance (MPAA) is a key consideration if you choose to work later in life, and have access to your pension (i.e., over the age of 56).
When you contribute to your pension during your working career, you’re allowed to save up to £40,000 a year into your retirement pots, or 100% of your annual income if below this level.
However, once you reach pension freedom age, currently 55, and you access pension funds, the MPAA kicks in.
The MPAA is currently £4,000. This means once you’ve drawn down funds from a pension, you are only allowed to contribute back in a maximum of £4,000. This includes personal, workplace and employer contributions.
If you are around pension freedoms age, continuing to work and don’t necessarily need your pension cash, it can be wise to leave it untouched to prevent the MPAA kicking in. This will allow you to continue accruing valuable employer contributions and tax relief on your pension savings.
If the MPAA has kicked in, it could be more tax efficient to save into an ISA instead. This will give you an annual tax-free savings limit of £24,000 (£4,000 for pension and £20,000 for ISA).
State pension deferral
Once you reach State Pension age you will be entitled to claim the valuable benefit, assuming you have accrued enough National Insurance Contributions (NICs) in your working life.
The age at which you can take State Pension used to be 65 for men and 60 for women. This has however now been equalised between genders and is in the process of rising to 68. You can find when you become eligible by using the Government website.
If you are eligible but have yet to take your pension, or are soon to be eligible – it can be a very good option to defer receipt of the benefit, if you can live without it.
This is because the longer you defer your payments, the higher your future pay outs will be. The State Pension increases by the equivalent of 1% for every nine weeks of deferral. This means for every year you don’t claim, you’ll get around 5.8% more when you do begin to claim.
For instance, if you’re eligible for the full weekly amount of £185.15, deferring it by 12 months will mean an extra £10.70 a week if you begin claiming one year after reaching full entitlement. Over a year, that adds up to an extra £128.40.
These figures are however purely an example – in practice the State Pension is uprated using the triple lock calculation each year so deferral will most likely lead to higher extra payments in future.
No National Insurance
Once you do reach State Pension age, you will no longer be liable to pay National Insurance (NI) contributions.
Any money you earn won’t be liable to NI contributions, which will mean ultimately, you’ll get more money in your pay packet at the end of the month. Pension income, likewise, doesn’t have any NI liabilities. You are however still obliged to pay income tax on any earnings – be they salary or State Pension income.
If you’d like to discuss any of the rules or tax implications for your wealth, don’t hesitate to get in touch to talk about your options.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
The World In A Week - We Get It, And We Have Listened
Written by Chris Ayton.
Last week brought some welcome relief to equity and fixed income markets. The MSCI All Country World Index rose +2.0% and the FTSE All Share Index recovered +1.4%. The Bloomberg Global Aggregate Index was -0.3% in GBP Hedged terms.
UK news last week was dominated by the UK government’s decision to reverse its planned axing of the 45p income tax rate just days after having announced it. “We get it and we have listened” Chancellor Kwasi Kwarteng sheepishly announced on Twitter. In a further attempt to calm currency and fixed income markets, Kwarteng was also forced to announce he would be bringing forward the disclosure of his debt reduction plan from 23rd November to the end of this month. Sterling and UK Treasuries recovered some lost ground, aided by the Bank of England’s promise of intervention through buying up long dated gilts.
In the US, bad news was initially good news as weak manufacturing data increased hope of slower additional interest rate increases from the Federal Reserve. However, the week ended with news that the US unemployment rate had dropped back to its pre-pandemic low of 3.5% which pointed to a tighter labour market and dampened any enthusiasm that the Fed may choose to take things slower. Nevertheless, the 1.8% rally in the S&P 500 Index comes after three consecutive quarters of declines for the S&P 500 Index, the first time this has been observed since 2008.
Eyes now turn to the Chinese Communist party’s 20th national congress, which opens on 16th October. President Xi Jinping is widely expected to win an unprecedented third term, but the focus will also be on how China plans to deal with the harsh economic challenges caused by their zero Covid policy as well as a rapidly slowing property market.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 10th October 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - No retreat, no surrender?
Written by Shane Balkham.
For many investors, it may seem like we have had too many ‘once-in-a-generation’ events over the past few years. Brexit, COVID-19, war on Ukraine and the cost-of-living crisis to name the obvious ones. However, last week truly gave us market ructions on a scale that forced policymakers into emergency measures once again.
The week began with the Bank of England (BoE) and UK Treasury battling to calm markets after the pound hit a record low against the US dollar of $1.035, as the consequences of the Government’s mini-budget played out. There was a lot of rhetoric designed to placate markets, with the BoE announcing that it would not hesitate to change interest rates as necessary, but only after a full assessment at its next scheduled meeting. This caused new concerns and gilt yields soared on the back of strengthened expectations of a significant rate hike at the next meeting.
The BoE’s Monetary Policy Committee was not due to meet until 3rd November, when they would publish the next Monetary Policy Report, giving guidance on inflation expectations. However, on Wednesday the BoE intervened in the gilts market, unleashing £65 billion of quantitative easing in order to stem the meltdown in UK government debt. The BoE’s plan is to buy long-dated bonds at a rate of £5 billion a day for the next 13 weekdays. It also suspended the current programme of selling gilts, which was part of the effort, along with interest rate hikes, to bring inflation under control. Although UK government bond markets recovered sharply after the announcement, economists warned that the printing of new money would add to the inflationary pressures.
The International Monetary Fund added to the UK’s woes by publishing a scathing attack on the UK’s plans, urging the Government to re-evaluate proposals amid the threat of spiralling inflation. It claimed that the Government’s plan to cut taxes and invigorate economic growth is at cross-purposes with the BoE’s task of combating inflation. It now puts the central bank in a position of potentially having to move interest rates even higher than may have been planned.
The unintended consequences of the Conservatives’ strategy to boost supply-side economics by reducing the tax burden facing businesses and families, alongside a major programme of investment to stimulate and drive growth, has shaken the faith in the UK’s finances. The timing of the mini-budget could not have been worse. Politically, it provided opposition parties with ammunition to attack the new prime minister and her cabinet. Economically, it has increased the uncertainty over inflation and growth. There are also arguments that proposed policies will push out the point at which inflation will peak and result in higher interest rates. The BoE’s remit has become increasingly more difficult.
Liz Truss now faces the devastation of her own making at the Conservative conference in Birmingham. While there has been an admission of mistakes, and a subsequent reversal of the elimination of the 45p top income tax rate, there is unlikely to be a retreat from the Prime Minister on the general direction of unfunded tax cuts. Time will tell how successful this strategy will be.
Long-term investing is the best antidote to market fluctuations. Our studies have shown that the longer you invest for, the higher the probability of making better returns. However, it can be difficult to remain dispassionate during market turmoil and that is why we continue to provide reassurance during your investment journey. Please take time to visit our website: www.YOU-asset.co.uk/stay-invested for an educational presentation on the importance of staying invested.
An appropriately diversified portfolio will provide cushioning during the worst of times and take opportunities during the better times. While Sterling plummeted, it does mean that certain parts of your portfolio will have benefitted. The consolation of being geographically diversified is that overseas assets are worth more when Sterling weakens. This is the same effect we benefitted from when Brexit broke in 2016.
Last week was one of the most challenging weeks in what has been an incredibly difficult year. In volatile times, the critical message is to remain vigilant but remain true to your long-term investment plan. In turn, we will remain robust in our long-term investment processes and philosophy, adding to our track record of delivering impressive long-term returns to our clients.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3rd October 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - The Almighty Dollar
Written by Cormac Nevin.
Last week was another challenging one for markets as the MSCI All Country World Index fell -0.3% in GBP terms. The same index was down -4.2% in local currency terms, which illustrates the continued fall in Sterling vs the US Dollar. The US Federal Reserve’s efforts to combat inflation have led it to tighten interest rates aggressively, which has led to a sharp rise in the dollar vs other major currencies. One of the worst affected currencies has been the Yen, which is now at multi-decade lows. The Pound Sterling and Euro have also been heavily impacted, with the Euro falling to below parity with the US Dollar. As of this Monday morning, 1 US Dollar buys roughly 0.96 Euros and 1.08 Pounds. The Federal Reserve’s reversal of quantitative easing, aptly named quantitative tightening, has also put pressure on the US Treasury market where liquidity conditions have deteriorated significantly.
Other events driving markets have been the “mini” budget announced by Kwasi Kwarteng, the new Chancellor of the Exchequer. In his address to parliament, Kwarteng announced a series of measures aimed at supply-side reform of the economy with tax cuts aimed at incentivising employment and investment. The fact that these tax cuts will be funded by borrowing led to a sell-off in the UK Gilt market and additional Sterling weakness. Only time will tell if these pro-growth measures have the desired impact of raising trend GDP growth.
On the continent, the weekend saw the election of Italy’s first female Prime Minister since the Risorgimento led to the creation of a unified Italy in 1861. Giorgia Meloni’s Fratelli D’Italia party will lead a right-wing coalition with a comfortable parliamentary majority. The prospect of Italy being governed by the most right-wing government since the end of the second world war will likely set the scene for further confrontation within the European Union, at a time when the block faces significant economic and energy security challenges.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 26th September 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Witnessing history
Written by Millan Chauhan.
Last week, the US Bureau of Labour Statistics announced that US CPI decelerated to 8.3% which was above estimates of 8.1%. Estimates had predicted a sharper slow-down in the level of inflation and the market reacted negatively to this news with the S&P 500 closing the week down -3.5% in GBP terms. With inflation still persistent and slowing down less than expected, this has increased estimates of a full 100 basis points rise in interest rates. Markets are expecting either a hike of 75 basis points or 100 basis points, which would be the largest rate hike in 40 years and would move the target range to between 3.0% and 3.25%. With further hikes expected, we are on track to see rates reach 4.0% by the end of the year. The Federal Reserve is expected to make its decision on Wednesday evening.
The Bank of England Monetary Policy Committee will make an interest rate decision on Thursday, as inflation came in at 9.9% in August 2022 which was down from 10.1% in July 2022. The expectation is that the policymakers will raise rates by 50 basis points, but they could adopt a similar stance to other central banks and hike more aggressively. The decision comes after the announcement of the Prime Minister Liz Truss’s energy pricing plan that will freeze average energy bills at £2,500 per year.
In the UK, we have observed a period of national mourning over the last 10 days following the death of Queen Elizabeth II, who reigned for 70 years and 214 days, the longest of any British monarch and the longest recorded of any female head of state in history. The state funeral of our late Queen took place in London yesterday, which was followed by a military procession to Windsor Castle where she was laid to rest in St George’s Chapel. Millions of people watched on the streets or on their televisions at home, witnessing a fitting tribute to mark Queen Elizabeth II’s final journey.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th September 2022.
© 2022 YOU Asset Management. All rights reserved.
Should I pay my child’s university fees?
No-one wants to see their child struggle financially but how much should parents be helping out with university fees, or should they rely on student loans?
Going to university isn’t cheap for a young person, even if they live on baked beans and pasta.
The cost of studying at university is estimated to be around £57,000 for a three-year degree, according to SaveTheStudent.
That is around £19,000 per year, so your loved one could still be in touch for more than just help with their washing.
The costs
Tuition fees alone can cost up to £9,250 in England, Wales and Northern Ireland or £27,750 for a three-year degree.
There are no tuition fees in Scotland if the student has been living in the country for three years.
Additionally, a student will also need to pay for materials such as books as well as their own food, energy and accommodation.
SaveTheStudent’s National Money Survey estimates living costs of around £9,720 or £29,160 over three years.
Adding that to three years of tuition fees takes the total cost to £56,910 – more than double the average salary in the UK.
But there is help available.
All students can apply for a tuition fee loan to cover the annual university bill.
UK nationals who are studying for the first time can also usually apply for a maintenance loan to help cover living costs, which varies depending on the university and your household income.
But leaving university with large debts may make it harder for your child to get on the property ladder or access other credit as it will form part of the affordability criteria in applications.
It is easy to see why parents may be tempted to help their child with these costs instead.
Paying your child’s university fees may help give them a more financially stable start in life as it could be easier to access an affordable mortgage rate or other credit if they don’t have a large level of student loan debt.
Here is what to consider.
Financial independence
University is likely to be the first time your child lives alone and learns the importance of running a household and budgeting.
This could be a good chance for them to learn how to setup and pay bills or to put money aside for essentials such as the food shop and their studies.
There a risk of spoiling them if you pay for everything.
Would it be better for your child, and your wallet, if they got a job to cover their costs or if you just made a small contribution each month to get them started?
Will you have to pay anything?
University costs may look daunting but the repayment terms on a student loan are different to traditional finance and it may be that the debt never actually has to be repaid.
Student loan repayments only become due in the April after graduation and only once the borrower reaches a certain annual earnings threshold.
The threshold depends on when a student started their course, but it is currently £27,295 for an English or Welsh student who started a course anywhere in the UK on or after 1 September 2012.
It functions, in effect, as a 9% income tax levy above this threshold. Any student debts are cancelled 25 years after the first April the student was due to repay.
While this dampens their earnings potential it won’t affect aspects of their finances such as credit rating. Mortgage providers will take into account how much they’re paying off each month as a part of income considerations but won’t consider the size of the ‘debt’.
Some employees may not earn above the minimum threshold and may not ever fully repay the loan, so paying for them may just be wasting your money.
Can you afford to wait?
Rather than paying upfront, you could wait until the end of your child’s degree. If they look likely to earn above the repayment threshold, you could then step in and help.
This way, your child will also have hopefully learned how to manage their money during university.
Alternatively, your child may end up with a highly paid role that makes it easy for them to pay off the loan quickly.
Can you afford to help?
Don’t give away money you may need for your own bills, retirement or care needs.
That is especially important at the moment with inflation, or the cost of living, expected to hit 13% over the next few months.
This could mean higher energy and food bills, while mortgage rates could get more expensive as interest rates rise to curb inflation.
Alternatively, you could put money aside for another use such as to help your child with a mortgage deposit once they graduate.
It may be worth speaking with a financial adviser to see how paying your child’s university fees fits in with your own financial plan and the best way of using the money.
The World In A Week - All change please
Written by Millan Chauhan.
Last week was an eventful week in UK Politics, as Kwasi Kwarteng was sacked as Chancellor of the Exchequer, a role which he held for only 38 days. This also came three weeks after he announced his mini-budget which caused Sterling to sell-off significantly, sent the cost of government borrowing and mortgage rates up, that led to an unprecedented intervention by the Bank of England. Jeremy Hunt has been selected as his replacement and will now make a medium-term fiscal announcement on the 31st October, if not sooner. The chaos that has unfolded over the last few weeks has put immense pressure on Liz Truss’s battle for political survival.
There were some important economic data releases last week in the UK, with GDP unexpectedly falling by -0.3% in August which was caused by a fall in the production sector. This latest data release also meant that the economy shrank by -0.3% in the three months to August. On Wednesday, we will find out the state of the UK’s inflation situation with September’s CPI data set to be released with expectations leaning towards a monthly increase of 0.4% (estimated 10.0% Year-on-Year).
US markets saw a huge intraday movement last Thursday, following the US inflation data release which saw US CPI come in at 8.2% on a year-over-year basis. This was slightly above estimates of 8.1% which sparked a very negative reaction from US markets at the open. Expectations were that we would begin to see inflation flatten as supply chains have improved and the labour market situation has recovered. US indices subsequently rebounded that day to close in the green as the underlying constituent data showed some signs of a slowdown. Time will tell whether we are at a juncture of a change in sentiment.
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