Mar 2022
The Chancellor Rishi Sunak has just delivered his long-awaited Spring Statement, with many holding out hopes for a brighter future as the cost of living continues to increase.
Sunak rightly highlighted in his opening remarks that the war in Ukraine meant the UK had to do the right thing and sanction Putin’s regime, but that it would come at a price to the rest of us. While it puts a strain on the UK economy, it does so on other countries around the world too – it’s just been particularly bad timing as we still seek to recover from the damage done by Covid.
In his bid to respond to the conflict by building a “stronger more secure economy for the UK”, Sunak outlined the following measures during his speech.
Highlights:
- Sunak announced a cut to the basic rate of income tax from 20% to 19% - the first in 16 years - which will be introduced by the end of Parliament in 2024.
- Fuel duty will be cut by 5p a litre from 6pm on Wednesday 23rd March.
- The National Insurance threshold will be raised by £3,000, meaning people must earn £12,570 per year before paying income tax or NI.
- VAT will be scrapped on home energy-saving measures such as insulation, solar panels and heat pumps.
- The Household Support Fund for local councils to help the most vulnerable will be doubled to £1bn from April.
- Retail hospitality and leisure sectors will have a 50% discount in business rates up to £110,000.
Here’s the speech in a little more detail.
OBR Forecast:
- The economy will grow by 3.8% this year.
- GDP will grow by 1.8% next year, 2.1% in 2024, 1.8% in 2025, and 1.7% in 2026.
- In October, the OBR had forecast growth of 6% for 2022 as the UK economy recovers from the Covid pandemic.
- The economy grew by 7.5% in 2021, after a fall of 9.4% in 2020 – the biggest decline for a century – during the first wave of the pandemic.
The chancellor says the OBR forecasts inflation will average 7.4% this year.
Cost of living:
- Fuel duty will be cut by 5p a litre from 6pm on Wednesday for a full 12 months.
- To combat fears this could offset climate change targets, the government will cut a 5% VAT rate for households installing solar panels, heat pumps, insulation to zero.
- Sunak says he will double the government’s household support fund to £1bn.
Borrowing:
- Sunak says borrowing in the current financial year, 2021-22, will be 5.4% of GDP, and will fall to 3.9% next year.
- In cash terms, the OBR estimates the budget deficit – the gap between spending and income – will be £127.8bn in 2021-22, and £99.1bn next year.
- In its previous forecasts in October, the OBR had estimated borrowing would be 7.9% of GDP, or £183bn in cash terms, in 2022-23.
- The chancellor says debt service costs will rise to £83bn in the next fiscal year, the highest level on record.
- Public sector net debt is forecast to be 95.6% of GDP in 2021-22, and then fall gradually to 83.1% of GDP by 2026-27.
National Insurance:
- The planned 1.25 percentage point rise in National Insurance contributions will remain.
- However, the threshold has been increased by £3,000 this year, up from a planned rise of £300. This equalises the National Insurance contributions threshold with the personal tax allowance of £12,570.
Income tax:
- Basic rate of income tax will be cut from 20% to 19% in 2024.
- Sunak says it would not be responsible to make such a tax cut right now, given the uncertainty in the economy.
The chancellor says it will be the first cut in income tax for 16 years.
If today’s Spring Statement has raised questions for you or your business, contact Downs Solicitors to see how we can help.
