Highlights of the Spring Statement 2022
Highlights of the Spring Statement 2022
In the Spring Statement, or mini-Budget as it turned out to be, Chancellor Rishi Sunak announced a range of changes which will impact our finances.
They focussed on low-income workers, in light of the current cost-of-living crisis, and included a shakeup of National Insurance, changes to the tax system, a temporary cut to fuel duty, and a reduction on VAT for energy-efficient measures.
The Chancellor began the statement on a gloomy note, referencing the war in Ukraine and the cost-of-living crisis in the UK.
In his speech he said: “Higher than expected global energy and goods prices have already led to an unavoidable increase in the cost of living in the UK.
“The repercussions of Putin’s invasion of Ukraine will add to these pressures and increase inflation further in the coming months, with the long-term consequences not yet being clear.”
Yet looking forward he also said: “The UK economy has emerged from the pandemic in a strong position to meet these challenges.”
You can find the full details of the Chancellor’s speech on the Gov.uk website, but here we’ve highlighted the main points.
Tax changes for lower earners
The basic rate of income tax will fall by 1% to 19%, from 20%, in April 2024. There are no changes to those who pay the higher-rate or additional-rate of tax. This applies to everyone in England, Wales, and Northern Ireland.
In Scotland rates are decided by the Scottish Government. The rate at which people start paying tax, also known as the income tax threshold, is currently frozen until 2026, as announced in the budget last year.
National Insurance Contributions
The threshold at which National Insurance (NI) is due is rising to £12,570 on July 6. This is an increase from £9,880 for the tax year 2022 to 2023.
This change is predicted to benefit 30 million people, and around 2.2million won’t have to pay NI at all because of the change, according to HM Treasury.
Boost to the Household Support Fund
The Household Support Fund, launched in October 2021, will be doubled to £1billion. It is a fund given to local councils for low-income households struggling with their finances. Money and vouchers are available to put towards groceries, energy bills and other everyday essentials.
In an attempt to tackle rising fuel prices, which are currently at historical highs of 167p a litre for petrol and 179p a litre for diesel, according to the RAC, a temporary 12-month 5p price cut was announced.
It started at 6pm on Wednesday.
Alcohol and cigarette duty
There will be no change to the cost of alcohol or cigarettes as the duty on both was frozen. This duty is usually increased in the Autumn Budget.
VAT reduction for insulation costs
Homeowners who want to install energy-efficient measures, such as insulation, solar panels, or ground source heat pumps, won’t pay any VAT for the next five years. Previously they would have paid VAT for energy-efficient materials at a rate of 5% for these.
What was missed out of the Spring Statement?
There were also a few areas missing from the Chancellor's speech, including the following.
Nothing was mentioned specifically for pensioners in the Spring Statement. While some will benefit from the change to the tax system through lower tax relief on their pensions, there was little else to benefit them.
From April there will be a rise of 3.1% to the State Pension, yet with inflation currently at 6.2% for the 12 months to February, in real terms pensioners will see a fall to the amount of money they get through the pension.
With inflation soaring and the Bank of England base rate at 0.75%, after recently rising, savers have very little choice when trying to find accounts paying interest. In fact, there are no cash accounts that beat the current rate of inflation.
Nothing was mentioned to alleviate rising inflation, or to offer any relief to savers. The only option for savers looking for a rate to beat inflation is to choose an investment ISA or an IF-ISA.
Those receiving benefits
Several organisations had called for the £20 uplift to universal credit which was brought in during the coronavirus pandemic to be reintroduced to help with rising costs. Yet this wasn’t on the Chancellor’s list yesterday.
As self-employed workers pay a different set of National Insurance Contributions, they won’t benefit from the change announced by the Chancellor. They pay a flat-rate contribution, known as ‘class 2’ when they earn more than £6,515 a year. They also pay class 4 contributions which are a percentage of their earnings when their income goes over £9,595.
Although help was introduced for low-income households, the chancellor stopped short at directly intervening to lower energy bills. This is an area where prices have risen extortionately in the last year and are set to rise further.
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