The Chancellor, Rishi Sunak, has delivered his Spring Statement. Whilst this was originally not intended to be a fiscal event, there were a number of tax announcements. In addition, the Chancellor published a “Tax Plan” for the remainder of the Parliament with a warning that the invasion of Ukraine “presents a risk to our recovery”.
The ever-rising cost of living is causing massive financial pressure on many lower-income families, so there had been increasing pressure for a delay to the previously announced increase in National Insurance (NI). The UK has been the only G20 country to announce a tax rate increase since the start of the COVID-19 pandemic and the NI hike would have cost an additional £339 per year for people earning £40,000. However, rather than delaying the increase, the Chancellor increased the threshold before NI is paid to bring this in line with the current Personal Allowances for income tax – £12,570.
In practice, this measure will mean that anyone earning less than £35,000 a year will pay less National Insurance during the year – about 70% of all workers. Those who earn more will see a tax rise, albeit smaller than they would have expected.
- For an employee earning £20,000 a year, it means an annual National Insurance cut of £180 in 2022-23, instead of an £89 rise expected before the announcement
- For a £40,000 earner, it means a rise of £70, instead of a previously expected £339 rise
- For a £60,000 earner, it means a £320 rise, instead of a previously expected £589 rise
- Self-employed people, who pay at a different rate, will see slightly less of a benefit from the chancellor’s decision.
This threshold is frozen, which means that more low earners will have to pay over time. The Chancellor also vowed to reduce basic rate income tax by 1p in 2024 – just ahead of the next election. However, it remains to be seen whether this will transpire.
Fuel duty was cut by 5p per litre for a period of 12 months, which will translate to an approximate £3.30 per tank reduction. However, people were quick to point out that this reduction does not go far enough to offset the significant rise in petrol costs of approximately 40p per litre. Furthermore, the likely future increases caused by the ongoing conflicts and associated sanctions may quickly offset this small concession, leaving people in a similar situation as before.
Benefits and the State Pension are rising by 3.1% in April, well below the rising cost of living. This prompted many charities to call on the Chancellor to go further, but he did not agree, saying nothing new about benefit and pension levels.
If inflation reaches the levels predicted by the Office of Budget Responsibility (OBR). then benefits and the State Pension could see a significant rise in April 2023 – as the increases are usually linked to the inflation rate in the preceding autumn.
Local councils will be given another £500m in the Household Support Fund, which supports vulnerable people with payments and grants such as vouchers to help pay their bills.
All in all, the Spring Statement was never going to be a swashbuckling event. Rishi Sunak has a never-ending stream of bad figures coming through, and an election to prepare for in 2024. However, he appears to be trying to win at both ends – trying to show that he is a tax-cutting Chancellor whilst actually presiding over the heaviest tax burden since the end of the 2nd World War.
His efforts at appearing to be a Chancellor with largesse also seemed inadequate, given the scale of the situation facing a large number of UK families who will struggle to keep their heads above water financially. A few pence off petrol and even a finessing of the National Insurance thresholds are unlikely to keep people happy.
At the end of the day, the Chancellor was never going to win. After a once in a lifetime pandemic, he might have thought that 2022 was going to be an easier ride. Events have taught us otherwise, and yet we might still look back upon the first 3 months of the year as the best part of 2022.
If you have any queries as a result of the Spring Statement, then please contact us.