Five key takeaways from the Spring Statement
With the knock-on effects of a horrifying war in Ukraine, a lingering pandemic and rampant inflation, a delicate balancing act was required for this Spring Statement.
The consensus seemed to be that it did not go far enough for struggling British households and employers, with the Chancellor holding back much-needed cash that could have been available.
Here is your summary of the top five takeaways.
Inflation is the word on everyone’s lips and Office of National Statistics figures published on the morning of the Spring Statement confirmed worst fears. For February it had jumped to its highest rate in decades at 6.2%.
Given that this is being driven by rises to essential consumables like energy and food it leaves nowhere to hide. Households, businesses and other organisations are all feeling the squeeze.
The chancellor also reported significant downgrades to our economic growth forecasts – GDP is set to grow only 3.8% in 2022, not the 6% predicted last October.
In better news, unemployment rates were 1.1 percentage points better than expected in the first quarter of 2022 at 3.9%, thanks to high vacancies and low redundancies.
National Insurance – winners and losers
The government’s much-discussed rise in National Insurance contributions of 1.25% for the NHS, health and care levy goes ahead, but the Spring Statement has given relief to some.
For employees and the self-employed, he has raised the threshold at which National Insurance is paid by £3,000 to £12,570 from July. This brings it into line with the personal allowance for income tax.
The Chancellor says this represents a £330 tax cut to 30 million people. However, don’t forget that when you do start paying National Insurance it is with the 1.25% premium.
This will slowly erode the tax cut, the more you earn. The tipping point between a tax cut and tax raise seems to arrive at just over £40,000. Those earning £50,000, will be paying £108 a year more than today.
Small business employers will get some protection too. It was announced that the employment allowance will be increased from £4,000 to £5,000, and so save an extra £1,000 in employer National Insurance contributions.
It’s thought nearly half a million small businesses will benefit, with an extra 50,000 being saved from paying any employer National Insurance at all.
Rishi Sunak has cut fuel duty on petrol and diesel by 5p a litre until next March.
While any cut in fuel duty is to be welcomed by hard-up motorists, 5p will not have much effect on the soaring prices, delivering not more than a small handful of change each time you fill up.
VAT on energy-efficient home improvements
Help with 2022 household energy bills had previously been announced. These came in the form of a £150 rebate on April council tax bills for houses in the A-D bands and a £200 energy bill loan in October to be repaid over five years.
Should you have the budget to invest in greener solutions like solar panels, insulation and heat pumps, the Spring Statement added to these measures. It was announced that the 5% VAT rate on these will be cut to 0%. Nice if you were thinking of going green, but not much help in the short term to people struggling to pay heating bills.
A surprise announcement on income tax
Chancellors are famed for liking to “pull a rabbit out of the hat” and Rishi was no exception this Spring. His big surprise was that he would cut the basic rate of income tax from 20p to 19p in the pound by the end of this parliament in 2024.
It’s something to look forward to, but not before a difficult period of inflation and other tax rises.
Need a review?
If you would like to review your business or personal finances in light of any of the announcements made in this Spring Statement, please get in touch to arrange a meeting.