On 23 March 2022, Chancellor Rishi Sunak announced a few significant changes in the Spring Statement. Overall, his budget update focused on taxation and building a stronger and more secure UK economy with three main points of focus: People, Ideas, and Capital.
Sunak’s rhetoric responded to the cost-of-living crisis and growing concerns around rising inflation, fuel, energy, and food costs. Consumer expert, Martin Lewis, made a stark public comment this week estimating that 10 million people are expected to experience fuel poverty in the year ahead. So, how did the Chancellor respond to this and general public unease in his Spring Statement?
Update on the economy
Chancellor Sunak delivered a bleak outlook, warning of the risk to the UK’s economic recovery following the pandemic’s impact and the current Ukraine crisis. As millions of people face the dilemma of cutting spending on food and clothing to pay energy bills, Sunak made it clear that his focus would be on helping families first with a raft of tax cuts.
Sunak then went on to say he aims to create the conditions for higher growth with various changes to business allowances and investments. As a result, UK debt is expected to fall from 83.5% of GDP in the next financial year to 79.8% in 2026-27. But Sunak warned that the UK’s “fiscal headroom” could be “wiped out by relatively small changes to the economic outlook”. As a result, the government has made “difficult decisions with the public finances”.
The government is expected to spend £83bn on debt interest, the highest on record. According to the Office for Budget Responsibility, annual growth is set to be 3.8% in 2022, followed by 1.8% in 2023 and 2.1% the following year. Although there was some good news – the 3.9% unemployment rate is predicted to be lower over the years ahead.
Tax and national insurance
- Basic income tax will decrease from 20% to 19% in 2024 (19p in every £1), the first income tax cut for 16 years.
- The income threshold for national insurance will increase by £3,000, rising to £12,570 in July 2022 to match the personal income tax threshold.
Support for businesses
- Small businesses will benefit the most with the employment allowance increasing to £5,000.
- Research and development tax credits (R&D) will be reformed with more generous reliefs and reduced tax rates on business investment (to be announced in the Autumn Budget).
Support for people
- Fuel duty has been cut by 5p per litre from the day of the budget announcements until March 2023.
- Zero VAT on energy efficiency materials, such as heat pumps, insulation or solar panels.
- The government’s support fund for vulnerable households will double to £1bn.
Pensions remained relatively untouched in the Spring Statement, and no major changes were announced.
Despite lots of rumours and pressure to lift the temporary planned suspension of the State Pension triple lock guarantee next tax year, Rishi Sunak failed to mention this in his spring update, and it will remain in place.
And whilst the basic rate income tax cut from 20% to 19% will be welcomed by many pensioners in 2024, it also takes away from those accumulating pension savings.
Tax relief is added to people’s pension contributions at their highest marginal rate, so cutting basic rate tax also reduces the amount the government has to top-up your pension pot by. Meaning you may need to save more to get the same retirement income. So between now and 2024, it may be worthwhile to make the most of the current 20% tax relief whilst it’s still available.
Cost of living crisis
As inflation is at its highest for the past 30 years and is expected to rise to 7.4% for the remainder of 2022, the UK faces the worst cost of living crisis in decades. Rising costs will impact everyone, no matter your income or salary level. If you’re a business owner, it’s worth noting that you may have employees who fall below the poverty threshold in the months ahead.
Now’s the time to put measures in place today that can help you protect your family and hard-earned money for a safer financial future. And this starts with your financial plan.
If you or your business are likely to be impacted by the Spring Statement or the cost-of-living crisis, get in touch to speak to our financial planners for advice.