Chancellor Rishi Sunak has unveiled his Spring Statement in the House of Commons. He delivered his mini-Budget amid uncertainty in the UK and world economy.

Mr Sunak said the sanctions and strong response by the UK to Russia’s invasion of Ukraine were vital in supporting the Ukrainian people. But he added that these decisions would inevitably have an adverse impact on the UK economy.

What’s in the Spring Statement?

The Chancellor announced a Tax Plan aimed at easing the rising cost of living.

It includes:

  • A rise in National Insurance thresholds
  • Temporary cut to fuel duty
  • Income tax reduction from 2024

National Insurance

The point at which you start paying National Insurance will rise by £3,000 from July, taking the threshold from £9,570 to £12,570.

But despite widespread pressure ahead of the statement, the 1.25% increase in National Insurance contributions (NICs) will still go ahead from next month.

Fuel duty

Mr Sunak announced a temporary cut in fuel duty for petrol and diesel of 5p per litre for 12 months – a measure he said was worth £2.4 billion.

Income tax

The basic rate of income tax will drop from 20p to 19p from 2024 – a cut worth £5 billion for workers, savers and pensioners, the Chancellor said.

Employment Allowance

The Employment Allowance will go up by £1,000 from 6 April. The relief – which allows smaller businesses to reduce their employers’ NICs – will increase from £4,000 to £5,000.

What else?

Among the other measures is an extra £500 million for the Household Support Fund, to support the most vulnerable families with their essentials over the coming months.

And VAT on energy-saving materials – such as solar panels, heating pumps and roof insulation – will be cut from 5% to zero for five years.

The Chancellor’s comments

Delivering his mini-Budget, Mr Sunak said: “This statement puts billions back into the pockets of people across the UK and delivers the biggest net cut to personal taxes in over a quarter of a century.

“Like our actions against Russia, I have been able to do this because of our strong economy and the difficult but responsible decisions I have had to make to rebuild our finances following the pandemic.

“Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.”

The state of the economy

The UK economy is estimated to grow by 3.8% this year, according to the Office for Budget Responsibility (OBR), a steep drop from its previous forecast of 6%.

The OBR predicts inflation will remain high throughout this year and next year, with a peak of 8.7% in the final three months of 2022. The average for this year is forecast to be 7.4%.

With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real living standards are set to fall by 2.2% in 2022-23, the OBR said.

Our reaction to the Spring Statement

As expected, the statement focused on ensuring many people received some help to see them through the current cost-of-living crisis.

There were some welcome changes for many and it was more generous than we’d hoped. But the Government has been criticised for not going far enough to help people who are struggling.

HMRC funding

Another announcement that caught my eye was the extra resources for HMRC.

The Government is investing £161 million over the next five years to increase compliance and debt management capacity in the tax body. It hopes the funding will bring in more than £3 billion of extra tax revenues over that period.

Perhaps the approach of striving to collect more taxes is a more achievable – and easier – alternative to overtly raising taxes?

Professional tax advice

For expert advice on a range of tax matters, call the Churchill Taxation team today on 07813 434195 or email:
Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation