Before the Chancellor stood up to give his Spring Statement today, it was announced earlier this morning that inflation in the UK has risen to 6.2% and that it is likely to average 7.4% for the rest of 2022. The UK economy is forecast to grow by 3.8% this year according to the Office for Budget Responsibility, which is a reduction of its previous prediction of 6%.
The Spring Statement was not the mini budget that some predicted. There were some announcements to help households with the cost of living, but with the recent invasion of Ukraine, the Chancellor stated that he is unclear as to what the impact will be on the UK economic recovery and that sanctions taken are not cost free.
The Chancellor commented that the economy and public finances will worsen “potentially significantly” as the UK is forecast to spend £83bn in the next financial year on debt interest, the highest on record. Borrowings as a percentage of GDP are expected to fall from 83.5% of GDP in 20022/23 to 79% in 2026/27.
We have set out below a summary of the main points announced today and the impact of the changes introduced.
- The Spring Statement increases the annual National Insurance Primary Threshold by £3,000 to £12,750 (currently £9,880), but it will be from July 2022. This is a saving of £330 a year for employees.
- The employment allowance which gives relief to small business National Insurance payments will increase to £5,000 (currently £4,000) from April 2022
- From April 2024, the basic rate of income tax may be reduced from 20% to 19%. This will be a tax saving of £175 for the average taxpayer. We will see if they live up to this promise!
Fuel and Energy Costs
- Fuel duty will be cut by 5p per litre from 6pm this evening until March 2023
- Homeowners installing energy efficient materials such as solar panels, heat pumps and insultation will not be subject to VAT
- Local authorities will receive £500m for the Household Support Fund from April, this is to help vulnerable households with rising living costs
- The Government will encourage businesses to offer more high-quality employee training and look at the current tax system, including the operation of the Apprenticeship Levy, to ensure it is doing enough to incentivise businesses to invest in the right kind of training
- Improvements to the R&D tax reliefs were announced including support for data, cloud computing costs, refocusing relief on R&D undertaken in the UK, allowing businesses to claim relief on R&D supported by “pure maths”
- The Government will review tax rates on business investment at the Autumn Budget
The Chancellor was under pressure to delay the Health and Social Care Levy which comes into effect from 6 April. This is an increase of 1.25% in National insurance. In July, half of the increase will be given back to mainly lower earners in the form of the higher National Insurance threshold. According to the Office for Budget Responsibility, UK households will see the biggest drop in spending power in 2022/23 since records began in 1956. With real household disposable income per person set to fall by 2.2% in 2022/23, this Spring Statement will not cover the loss of real spending power for individuals, but it may mitigate some of the impact.
If you have any questions regarding the Spring Statement, please contact the CBW tax team.