2022 Spring Statement Summary
Starting at 12:45pm, 23 March 2022, the Chancellor of the Exchequer, Mr. Rishi Sunak, delivered his Spring Statement to the House of Commons.
Mr Sunak’s speech was widely anticipated given the state of the UK economy after the Covid pandemic and the more recent issue of the rising cost of living.
The Spring Statement isn’t usually the forum to announce big decisions about tax and public spending, but the recent squeeze on households meant it was hoped that the chancellor would announce measures to help people through this difficult economic period.
Personal finance expert, Martin Lewis, said the current “squeeze facing households was worse than during the Covid pandemic or after the financial crash of 2008” (1), he also said “political intervention” was needed to ease the financial burden.
Mr. Sunak had recently said he would not be able to “fully protect” people from the consequences of rising prices. However, he did say he was prepared to step in and offer support with the caveat “it’s not going to be easy” (1).
Millions of households will experience a big hike in energy bills from April, when the government’s price cap increases. Some rises could mean households paying up to 54% more than they are currently paying for their energy. The rise is compounded by a second price increase which is expected in October 2022. The rising cost of fuel isn’t helping matters and is contributing to the rising cost of clothes and food towards a 7% inflation rate. Recent figures show prices rose by 6.2% in the 12 months to February 2022, which is the fastest rise for 30 years (2).
Despite calls from the opposition to scrap the 1.25pence in the pound rise in National Insurance due in April, Mr. Sunak did not push the date back. After all, the cost of the Covid pandemic needs to be recouped by some means.
The chancellor had several options available to him to help the British people, but which of his options (listed below) were really viable given the huge cost of dealing with the Covid pandemic and the financial uncertainty caused by the conflict in Ukraine and the rising cost of fuel?
- Relief from green taxes
- Cutting fuel duty
- Top up universal credit
- Scrap National Insurance increase
- Freeze energy prices
- One-off “windfall” tax on oil and gas companies (2)
What is obvious, is that it become clear to everyone that something needs to be done to protect the public who are already struggling after the devasting impact of the Covid pandemic, whilst also providing support for businesses to ensure the economy continues to recover.
These are some of the key points from the 2022 Spring Statement
The state of the UK economy and public finances
- According to the Office for Budget Responsibility (OBR), the economy is now forecast to grow 3.8% in 2022. That’s a huge cut from the original forecast of 6% growth.
- The UK economy is forecast to grow by 1.8% in 2023 and 2.1% in 2024.
- The annual inflation rate reached 6.2% in February, with the OBR expecting inflation to rise nearer to 7.4% for the rest of the year.
- Unemployment was at 3.9%, which is now predicted to be lower in each year of the new forecast.
- The chancellor says the UK's underlying debt is expected to fall from 83.5% of GDP in the next financial year to 79.8% in 2026/27.
- In the next financial year, the UK is forecast to spend £83bn on debt interest, which is why the government must make "difficult decisions with the public finances".
Fuel and energy
- Fuel duty will be cut by 5 pence per litre, from 6pm 23 March 2022. A measure that will be in place until March 2023. According to the RAC, this will cut approximately £3.30 off the cost of filling a typical 55-litre family car (4).
- Currently there is 5% VAT relief of the installation of energy saving materials e.g.: solar panels, heat pumps etc. Homeowners will now pay 0% VAT on the installation of energy saving materials, after Mr. Sunak announced he would scrap VAT energy efficiency measures.
Tax and National Insurance
- The chancellor announced the government will raise the threshold for the amount people earn before they pay National Insurance. He says, "From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or National Insurance". He added, "The largest increase in a basic rate threshold ever, and the largest single personal tax cut in a decade." This represents a tax cut of £330 per annum.
- The chancellor's trump card was his final announcement. For the first time in 16 years the basic rate of income tax will be cut from 20% to 19% in the pound.
Help with the cost of living
- The chancellor says he wants to do more to help those who are more vulnerable by doubling the household support fund to £1bn.
Help for businesses
- Retail hospitality and leisure sectors will have a 50% discount in business rates up to £110,000.
- The Employment Allowance, which gives relief to smaller businesses' National Insurance payments, will increase from £4,000 to £5,000 from April 2022.
There was a lot being asked of the 2022 Spring Statement, by the public and businesses alike. Whether the chancellor’s measures make a positive difference, only time will tell.
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