The 2022 Spring Statement delivered today by Chancellor of the Exchequer Rishi Sunak was set against the difficult backdrop of a post-pandemic global economic recovery coupled with the Russian invasion of Ukraine.
The message the Chancellor gave was that of his Government providing security for the UK by ‘strengthening the economy’ and ensuring ‘resilient public finances’. He was at pains to point out that the sanctions imposed on Russia were not ‘cost free’ and that there would be inevitable disruption to the global supply chain and increased energy costs ahead.
He explained that the Office of Budget Responsibility (OBR) forecast reduced growth in the UK economy allied to an expected average inflation figure for 2022 of 7.4%. However, they also predicted a continuing strong labour market with falling levels of unemployment. He did caution though that the economic impact of the Russian invasion of Ukraine had not been factored into their forecasts.
Chancellor Sunak’s platform this Spring was, he said, built around a new Tax Plan published alongside the Statement. He saw his immediate task as being to try to help people and businesses manage rising costs and announced:
- A reduction in Fuel Duty of 5p per litre effective from 23rd March 2022 to last for a year.
- A reduction of VAT to 0% on energy saving products like solar panels and insulation materials.
- A doubling of the Household Support Fund for Local Authorities to help those most in need in their communities.
The Tax Plan itself was based on the reduction and reform of taxes. It contained proposals to make R&D tax relief and credits more relevant and to review the effectiveness of the Apprenticeship Levy. In addition to suggestions for future consultations there were also some tangible and welcome proposals:
- There was to be no deferral of the Health and Social Care levy or reductions in National Insurance Contribution (NIC) rates but the threshold at which NICs begin to be payable is to be aligned with the tax Personal Allowance rate. From July 2022 the NIC threshold is increased by £3000 to £12,570. There is relief too for self-employed businesses with low profits helping to reduce the Class 2 NICs they must pay.
- The Employment Allowance for employers is to be increased £4000 to £5000 from April 2022.
- Perhaps the most eye-catching commitment (always subject to the state of the economy!) was to reduce the basic rate of Income Tax from 20% to 19% by 2024.
There was probably a little more given away by the Chancellor than was expected given the debts that were run up during the COVID crisis. The fact that the economy has recovered from the COVID 19 crisis more quickly than expected and as a result borrowing is lower gave the Chancellor funds to help address the cost of living crisis.
Increasing the NI threshold (rather than reversing or delaying the publicised increases in Employer’s and Employee’s NI) is quite a clever political move as it helps offset the cost of the NI rises for 70% of workers whilst still collecting extra tax from the highest earners. If he had reversed his decision so close to the new tax year it would also have created difficulties for payroll teams and software providers who would have struggled to react in time which is presumably why the threshold change takes effect in July.
The decrease in fuel duty by 5p will obviously be welcomed by drivers.
Those that watched the coverage to the end will have seen the Shadow Chancellor berate the Chancellor for allowing fraudsters to take advantage of the Chancellor’s Covid schemes (such as bounce back loans) which she said cost the Treasury £11.8bn which could have been used to relieve the cost of living crisis. Interestingly in the Chancellor’s written statement was an announcement of an additional compliance and debt management resource for HMRC (amounting to £161 million over the next five years) which is forecast to bring in more than £3 bn of additional tax revenues over the next five years. Clearly expectations of success are low.
All in all it was a relatively positive Spring Statement for workers although it remains to be seen whether the measures announced today do enough to counter rising energy costs, inflationary pressures, and the effect of the war in Ukraine. November’s Autumn Statement and Budget will probably provide the answer.
