The Chancellor, Rishi Sunak, unveiled his Spring Statement today (23rd March). There were few changes announced, many of which were leaked beforehand. These changes are set out below.
In 2021, the Government announced a hike in the rate of National Insurance which it said would take effect from April 2022. It said the additional tax revenue will directly fund the NHS and social care.
Since then, the cost of living has soared dramatically due to rising oil/gas prices, along with supply issues as a result of the pandemic and the Russian invasion of Ukraine. Despite intense pressure, Sunak persevered with the tax hike, stating the tax revenue is needed now.
A ray of sunshine came in the form of an increase in the amount people can earn without paying National Insurance; from April 2022, earnings up to £12,570 per year will be free from National Insurance – an increase of around £3,000. According to Sunak, this is “a tax cut for 30 million people worth over £330 a year”.
The 1.25 percentage points hike in National Insurance rates will also apply to dividend income tax rates (e.g. the basic rate of income tax for dividends is 7.5% in March 2022 and this will become 8.75% in April 2022). No changes were announced in respect of the dividend income tax allowance of £2,000.
Cut in Fuel Duty
Sunak announced a 5 pence cut in Fuel Duty (one of the taxes paid per litre of petrol and diesel) which will remain in place for 12 months. Critics were quick to point out that tax revenue per litre of fuel will still be greater than it was 12 months ago. This is because VAT is payable based on fuel prices, which are near all-time highs.
VAT will be scrapped on home energy-saving measures (including insulation, solar panels, and heat pumps).
The Household Support Fund for local councils to help the most vulnerable will be doubled from £500m to £1bn from April 2022.
Retail hospitality and leisure sectors will have a 50% discount in business rates up to £110,000.
The Spring Statement is not normally a time for major shifts in taxes and benefits, and 2022 was no exception. The Chancellor might look to make bigger changes at the Budget later this year.
In the meantime, it is hoped the situation in Ukraine will settle and the impacts of the pandemic will have greatly reduced. If this happens, the cost of living might start to become less of a pressing issue. Until then, many families will face tough times with higher gas, petrol, and food prices, alongside hikes in National Insurance and interest rates.