As the cost of living and taxation surge, Katherine Arthur from accountancy firm Haysmacintyre LLP questions what can be done to mitigate the cost-of-living crisis.

New research shows that the gap between the rich and poor is at its highest level since records began, an important consideration for wealth managers as government tackles inflation and assesses taxation, currently also at record levels.

The Cost of Living Tracker by HyperJar, a personal finance startup, and consultancy firm Retail Economics, reveals that discretionary income among the least affluent UK households plummeted by 12.3 per cent in April, equivalent to £59 ($73) per month less cash available to spend on non-essential items. This compares with the most affluent households, which have seen their spare cash fall by 1.4 per cent compared with the same month last year, leaving them with £61 ($76) less to spend on discretionary items in April, the report shows.

Essential costs such as energy and food are seeing some of the fastest price rises, which are hitting the least affluent households the hardest, the report states. Consumers are consequently already changing their shopping habits and adopting recessionary behaviours in the face of rising inflation and squeezing incomes, it adds.

Katharine Arthur, partner and head of private client at accountancy firm Haysmacintyre LLP, also highlighted the latest set of tax receipts from HMRC which show that National Insurance contributions have spiked since the rate increase at the start of April 2022.

“With people now paying £160 billion ($200 billion) in National Insurance over the last twelve months, up £14 billion ($17.5 billion) on the year before, it is undoubtable that rising costs combined with record tax levels will be hitting taxpayers hard,” she said.

As inflation puts up asset values, more people are dragged into higher tax brackets or taxes for the first time, such as inheritance tax. With IHT, the nil-rate level, above which the tax starts to bite, is £325,000.

“Inflation is having a significant impact on all taxes,” Arthur continued. “Wages and salaries are rising to keep pace with the inflation rate, causing income tax and National Insurance to spike. With house prices remaining high, annual inheritance tax receipts continue to break new records,” Arthur said.

“Although the upcoming increase to the National Insurance threshold this July will, to some extent, level-off the tax increases, for many people it will not be enough,” she said. “Today’s figures feed into the bigger question of what the government will do to mitigate the cost-of-living crisis. While nothing is supposedly ‘off the table,’ we need to understand what is actually on the table and how it will be implemented to help Brits through these difficult times,” she said.

Receipts for inheritance tax for April 2022 have been recorded at £500 million, which is higher than a year ago and following a trend in IHT receipts from recent years.

“The turbulence witnessed in world economies and stock markets this Spring is unlikely to filter through to IHT receipts for a little while and, indeed, may not even result in a notable impact with ongoing rises in property prices steadying the overall value of private estates,” Laura Tommis, business and relationship development manager at ZEDRA, said.