The Office for National Statistics (ONS) has confirmed that inflation in March reached 7%. This increase, up from 6.2% in February, marks the fastest rise in the cost of living in three decades.
Fuel prices and household bills are rising and, along with the continuing war in Ukraine, have forced the Office for Budget Responsibility (OBR) to backtrack on their GDP growth forecasts for the year, downgrading from 6% to just 3.8%.
Inflation is set to continue rising, spelling a difficult time for many UK households. The Bank of England (BoE) does not expect the Consumer Price Index (CPI) to fall back to its 2% target until sometime in 2024.
It was in this economic climate that the Chancellor of the Exchequer, Rishi Sunak delivered his Spring Statement on 23 March 2022.
1. The Health and Social Care Levy remains
Announced by the Prime Minister ahead of the Chancellor’s 2021 Autumn Budget, there had been calls for Sunak to cancel plans for a 1.25 percentage point rise in National Insurance contributions (NICs).
The rise, to be payable by employers, employees and, for the first time, those people working beyond State Pension Age, is due to become a Health and Social Care Levy from 2023.
Over the next three years, it is expected to raise £39 billion to help relieve the NHS’s Covid backlog, before being funnelled into relieving the social care crisis.
The Chancellor used the Spring Statement to confirm that the rise would go ahead. In recognition of the current financial hardships faced by many UK families, this was not the end of the changes being made to NICs.
2. National Insurance thresholds rise
Despite the Health and Social Care Levy, thanks to another announcement made by the Chancellor, around 70% of NIC payers will pay less in contributions overall.
This announcement saw a change to the NI Primary Threshold for employees and the Lower Profits Limit for the self-employed.
These changes raise the threshold of earnings before NICs become payable, equalising NICs and Income Tax. This means that from July 2022, an individual can earn up to £12,570 a year with no Income Tax or NICs to pay.
Sunak stated that almost 30 million people would benefit from the change, with employees saving £330 for 2022, on average. The Treasury, meanwhile, confirmed that more than 2 million workers will be taken out of paying Class 1 and Class 4 NICs and the Health and Social Care Levy entirely.
The threshold increases, alongside the NIC rise for the Health and Social Care Levy, will combine to mean there is likely to be little negative impact for those earning up to £40,000 a year.
3. Tax cuts for drivers and eco-aware homeowners now, with a cut for workers by 2024
The Spring Statement’s remaining big announcements saw tax cuts for many, either now, or in the future.
A VAT cut for eco-friendly measures at home
Sunak used his spring statement to address climate change issues, removing VAT on some measures to help homeowners improve their property’s eco-friendly credentials.
The Treasury expects the cut to save £1,000 on the cost of installing rooftop solar panels, for the average household. The panels should go on to save that same family £300 a year on energy bills.
A drop in fuel duty
Acknowledging the current cost of living crisis, Sunak cut fuel duty for only the second time in 20 years.
The 5p-a-litre reduction is expected to save the average car driver around £100 for the 2022/23 tax year, compared to the alternative of uprating fuel duty. The average van driver, meanwhile, will save £200, and the average haulier £1,500.
A proposed drop in the rate of Income Tax
Sunak confirmed that the UK’s continued Covid recovery and increased global uncertainty would make tax cuts “irresponsible”. However, he did state his intention to make changes to Income Tax before the next General Election.
From April 2024, presuming the Government meets its own fiscal principles during the next two years, the basic rate of Income Tax will be reduced from 20% to 19%.
This would mark the first cut in the basic rate of Income Tax for more than 16 years, at a cost to the Government of more than £5 billion a year.
Get in touch
If you have any concerns about the announcements made in this year’s Spring Statement, or you have any questions about your long-term financial plans as a whole, get in touch now. Email firstname.lastname@example.org to find out how we can help.
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