The Chancellor began his Spring Statement by highlighting that the ongoing war in Ukraine has impacted on previously forecasted growth for the economy in part due to Russian sanctions that come at a cost to the UK. We’re also in the midst of recovering from a major global pandemic, which in itself had already been affecting supply chains and energy prices.
He delivered his statement against a rather bleak backdrop from The Office for Budget Responsibility (OBR), which has reduced the UK economy growth forecast from 6% to 3.8% for 2022. It also predicted inflation would reach an average of 7.4% for this year whilst warning that living standards were set to fall at their fastest pace since records began in the 1950s.
Fuel has seen unprecedented rises in just a few short weeks. This has been attributed to Russia’s invasion of Ukraine and the impact this has had on supply. Today, the Chancellor announced a 5p per litre cut in fuel duty. This will take effect from tonight (23 March) at 6pm and will be in place for 12 months.
National Insurance rise
The proposed 1.25% National Insurance rise to help fund the health and social care sector following the pandemic will go ahead. However, from July 2022 the threshold will rise by £3,000 to match that of the personal allowance. This means that workers won’t be eligible to pay any National Insurance until they’re earning over £12,570.
The original rise to the threshold was set at £300. The government has said that the threshold increase will create a tax cut of £6 billion and help 30 million working people.
Help for vulnerable households
The Household Support Fund was set up in Autumn 2021 to support vulnerable households with everyday living costs such a food, energy and clothing. Payments are distributed by local councils in England.
The Chancellor has announced that the government will double the fund by £500 million, bringing the total to £1 billion in an effort to help those most at risk from the rising cost of living over the coming months.
Energy saving support
In a bid to help households be more energy efficient, it was revealed that VAT will be cut from 5% to 0% on energy saving materials for the next five years. This includes items like roof insulation, solar panels and heat pumps.
Investment for businesses
There were measures announced to support the growth and productivity of UK businesses.
From 6 April, Employment Allowance will be increased from £4,000 to £5,000. Employment Allowance is a relief offered to help smaller businesses reduce their employers’ National Insurance Contributions (NICs). This will help 50,000 small businesses, taking the total number of firms not paying NICs or the Health and Social Care Levy to 670,000.
Two new sets of business rates relief were also announced. From April 2022, there will be no business rates on sustainable technology used to decarbonise buildings, such as solar panels and batteries. Heat networks will also receive 100% relief.
Income tax cut
It was announced that there will be a cut to the basic income tax rate in 2024. The rate is set to be reduced from 20% to 19% and would be the first income tax cut in 16 years.
This is set for further down the line due to the uncertainty facing the economy at present, however, the OBR have stated that by 2024 it expects inflation to be back under control.