On the same day that the Office for National Statistics (ONS) confirmed inflation in February had risen to 6.2%, Rishi Sunak delivered his spring statement.
With the UK’s cost of living crisis deepening and the war in Ukraine causing a downward revision of GDP growth forecasts, the chancellor looked to provide security at an uncertain time.
Keep reading for a rundown of some of the key announcements, plus, what they might mean for you, now and during the next couple of years, as a General Election looms.
The current economic outlook is for slower growth than previously forecast
Back in October, the Office for Budget Responsibility (OBR) forecast GDP growth of 6% for 2022. Continuing global supply chain issues and the war in Ukraine have led the OBR to revise its forecast down to just 3.8%, with annual growth of between 1.8% and 2.1% until 2026.
While the Bank of England (BoE) recently announced its third consecutive rise to the base rate up to 0.75%, rising inflation is increasing fuel bills and household expenditure, threatening to push working families into poverty.
Inflation hit a 30-year high of 6.2% in February, with the OBR forecasting a rise to 7.4%. The BoE, meanwhile, has confirmed that it doesn’t expect inflation to return to its 2% target until sometime in 2024.
So how did the chancellor choose to address these issues?
The Health and Social Care Levy remains… but National Insurance thresholds rise
Many were hoping that Sunak would U-turn on his unpopular rise to National Insurance contributions (NICs).
The 1.25 percentage point rise will be payable by employers, employees, and working pensioners above the State Pension Age. This latter group will be making contributions for the first time.
The rise to NICs will become a Health and Social Care Levy from 2023, with money raised helping the NHS as it recovers from the coronavirus pandemic.
Rather than backtrack on the NICs rise, Sunak instead announced a rise to the National Insurance (NI) Primary Threshold and Lower Profits Limit, for employees and the self-employed, respectively. The changes will equalise the NICs and Income Tax thresholds from July 2022 so you can earn up to £12,570 a year without paying any Income Tax or NICs.
The chancellor confirmed that around 70% of NI payers will pay less in contributions overall, with almost 30 million people benefiting from the change. On average, employees could save £330 in 2022.
Tax cuts would be “irresponsible” currently but the Income Tax rate could drop in 2024
As previously mentioned, inflation is expected to drop back to the BoE’s 2% target by 2024. And while Sunak confirmed that it would be “irresponsible” to cut taxes in the current climate, he did announce potential changes due to come into force before the end of this parliament.
The chancellor committed – with some caveats – to reduce the basic rate of Income Tax by 1p in the pound, from 20% to 19%, from April 2024.
Presuming the government meets its own fiscal principles and the decrease goes ahead, it will be the first cut in the basic rate of Income Tax for more than 16 years and cost the government more than £5 billion a year.
A drop in fuel duty alongside a VAT cut for eco-friendly measures at home
Back in February, Sunak announced plans to help households meet around half of April’s rise to the energy cap. The scheme will cost the government around £9 billion.
In his spring statement, the chancellor also announced a cut to fuel duty. The 5p-a-litre reduction marked only the second time in 20 years that the duty had been cut. The Treasury has confirmed the reduction is worth:
- Around £100 for the average car driver
- £200 for the average van driver
- £1,500 for the average haulier.
These figures are compared to uprating fuel duty for the 2022/23 tax year.
Rishi Sunak also used his spring statement to announce cuts in VAT for homeowners looking to increase the eco-friendliness of their homes. The removal of VAT could save a typical household £1,000 when installing rooftop solar panels, and a further £300 a year on energy bills.
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Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
