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The Chancellor of the Exchequer, Rishi Sunak, today announced changes to income tax, fuel duty and National Insurance in his 2022 Spring Statement, with a backdrop of forecast growth of 3.8% this year, eroded by forecast inflation of 7.4% this year and spend of £83b on debt interest alone.
And this is before the full impact of the Ukraine-Russia war hits. Many may find themselves somewhat underwhelmed by the changes, with the cost of living increasing at the highest rate since records began nearly 70 years ago.
Here is a detailed summary of the key announcements made, for the year ahead and further into the future. “[T]oday’s statement builds a stronger, more secure economy for the United Kingdom” Do you agree? We summarise the key headlines here.
Key Changes in the year ahead
National Insurance
From July 2022, the threshold at which workers will start making Class 1 and Class 4 National Insurance contributions (NICs) will increase to £12,570, in line with the income tax personal allowance. In the Autumn Budget, Sunak announced a new 1.25% health and social care levy to be added to Class 1 and 4 National Insurance rates. Despite sustained calls to at least delay this hike, the Chancellor today confirmed that it would still be implemented from 6 April 2022.
According to the Chancellor, the higher NICs threshold will mean around 70% of all workers will have their taxes cut, even after paying the extra 1.25% health and social care levy. However, it appears the tipping point here is for those earning £34,000-£35,000; from this point, workers will still be paying more tax due to the levy.
Fuel Duty Levy
To help with spiralling petrol prices, not helped by the Ukraine-Russia war, fuel duty will be cut by 5p per litre, taking effect from 6pm tonight until March 2023. This is only the second time the duty has been cut in 20 years, saving the average car drive £100 over the next year and van drivers around £200. It is reported to be the biggest ever cut for all fuel duty rates. This saving is significantly less however than the recent fuel price increases and for perspective, UK fuel duty is currently 57.95 pence per litre for petrol and diesel despite many years of freezes. This will cost the taxpayer an estimated £5b.
VAT on Energy Saving Materials
VAT will be reduced from 5% to 0% to pay for homeowners investing in energy saving materials such as solar panels, heat pumps or insulation for the next five years. It is hoped this will stimulate further energy savings investments, which will further be encouraged by recent energy price rises. Wind and water turbines will also be included within the scope going forward. It is estimated that a family having a solar panel installed will see tax savings worth over £1,000 and an energy bill saving of over £300 per year.
Household Support Fund
For the most vulnerable households, Sunak announced the Household Support Fund is being doubled to £1bn. This fund was first introduced in November 2021, and its support was initially due to end on 31 March 2022. Local authorities will receive the extra funding from April 2022, and can choose how to divide it among those most in need in their local areas.
Public Sector Fraud Authority
To combat the UK’s ‘fraud epidemic’ the Spring Statement announced that the government will create a new public body called the Public Sector Fraud Authority. Based with £48.8m worth of funding over the next three years, it will work alongside and enhance the counter-fraud work by the British Business Bank (BBB) and the National Intelligence Service.
The body will help enable government and enforcement agencies to step up their efforts to reduce fraud and error, recover millions of pounds lost to fraud and ‘bring fraudsters to justice’.
The government said that the creation of the new public sector body will put ‘counter-fraud at the heart of decision-making’. This is needed after the scale of fraud related to the recent covid bounce back loans.
Employment Allowance
Mr Sunak has announced that the Employment Allowance for business will increase by £1,000 from £5,000 from April 2022, making it cheaper for businesses to hire workers.
Future Changes
Income tax rate cut
In 2024, basic-rate income tax is due to be cut from 20% to 19%. It’s estimated that more than 30m people will benefit from a tax cut of around £175, and it will be the first time the basic rate of income tax has been cut for 16 years. This will cost the taxpayer an estimated £6b.
Reformed business investment taxes
To address the lack of capital investment in UK businesses, the government is looking for ways to reform taxes around business investment. Plans will be confirmed at the Budget later this year. Reforms to R&D tax credits will be announced in the Autumn, broadening the definition to include mathematics. Currently an advance is in either ‘science’ or ‘technology’ and guideline’s definition of these concepts does not include maths.
Simpler tax reliefs and allowances
The Autumn Budget could herald some big tax changes, as the government’s Tax Plan document says it’s seeking to simplify the tax system – which could mean an overhaul of the 1,000 existing tax reliefs and allowances. However, we hate to sound cynical, but we’ve heard this several times before and most “simplifications” lead to a growth in the amount of tax legislation which we will leave you to draw your own conclusions on.
What Wasn’t in?
Some of the key things which were conspicuous by their absence in the Spring Statement, included:
- There was no place for Labour’s windfall tax on the “super profits” of energy companies, aiming to cut household gas and electric bills. The cost and likely increase in future household gas and electric bills were cited for this.
- As noted above, the additional 1.25% health and social care levy to be added to Class 1 and 4 National Insurance rates from from 6 April 2022 is still going ahead despite pressure to at least postpone this from both sides of the house. The increase in threshold will reduce the impact of this on lower earners however.
- There are no significant changes in Capital Gains Tax, Pensions and R&D, although the latter is coming.
- There was no increases in benefits or increases in public sector workers.
As always, the devil is in the detail and more information will come to light as the dust settles. We will of course keep you updated across our blogs and social media channels (Facebook, Instagram, LinkedIn, Twitter and YouTube).
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