Spring Statement 2022 - all you need to know
The backdrop to today’s Spring Statement is unlike any other. Mr Sunak is grappling with both the implications of the pandemic and the financial challenges thrown up by Putin’s war in Ukraine. In addition, we are seeing a cost-of-living crisis manifesting itself in spiralling consumer prices, particularly for energy.
Immediately before the Chancellor’s speech, the inflation rate was announced at 6.2 per cent, the highest it’s been in 30 years. And pressure on employers continues to grow with imminent increases in the national minimum wage, employers’ national insurance contributions, and corporation tax.
"To top it all, Mr Sunak finds himself responsible for the largest increases in taxes in living memory. Perhaps as a result, he referred multiple times in the Spring Statement to reducing the tax burden. He also announced a number of measures which, at first glance at least, appear to go some way towards shaking off his high tax reputation".
Let’s look at the headline tax-cutting ideas in a bit more detail. These all form part of a wider “Tax Plan”, but three measures in particular stand out. The first is the much-anticipated 5p per litre reduction in fuel duty. The second is the increase in the threshold at which national insurance contributions become payable. The third is the future potential 1p reduction in the basic rate of income tax:
Fuel Duty Reduction
The fuel duty reduction will no doubt be welcome, and analysis suggest it will save on average £3 on a full tank of fuel. But with forecourt prices fluctuating wildly, it remains to be seen if this reduction actually makes its way fully into pump prices. I can foresee situations where forecourt operators will quietly pocket some of the margin, so it’s important that consumers shop around to get the best deal.
National Insurance Threshold
The increase in the threshold at which national insurance contributions applies looks like a welcome contribution to easing the cost-of-living crisis. Interestingly it’s only now that the national insurance threshold is finally aligned with the income tax threshold, thereby rectifying an oddity in the UK tax system. What remains to be seen however is how far the benefits from the increase in the threshold are eroded by the simultaneous 1.25% increase in the Health and Social Care Levy, which is going ahead despite wails of fury from Mr Sunak’s own party. He did say however that around 70% of working people would be better off overall as a result of the increase in the threshold. But it will be interesting to see the overall figures as these changes are implemented over the next year. This is because the combined result of the change in the threshold and the increase in the Health and Social Care Levy may still well be an overall increase in tax take for the Treasury. Time will tell, but if this does come to pass, it will again sit awkwardly with Mr Sunak’s repeated assertions about being a tax cutting Chancellor.
Income Tax Reduction
I expect the penny reduction in income tax to lead in most newspaper headlines. This is undoubtedly a feel-good ploy by Mr Sunak that will be rightly welcomed, particularly by his own back-benchers. There was no commitment on timing, only that his objective was to bring this before the end of this parliament, being December 2024. Given the economic uncertainty we face, I think we should see this proposed reduction as a keenly held objective of the Chancellor’s rather than a cast-iron guarantee. Whether he can deliver it will I think depend on economic and political landscapes over the next couple of years.