As news broke that UK inflation had reached a new high of 6.2%, Chancellor Rishi Sunak’s Spring ‘mini-Budget’ was expected to focus on the cost-of-living crisis – and it did. Leading with a pledge of further support for Ukraine and “unprecedented” sanctions on Russia, Sunak vowed to “confront this challenge to our values not only in the arms and resources we send to Ukraine, but also in strengthening our economy here at home”.
Cost of living
Sunak announced three immediate changes here:
- Fuel duty to be cut by 5p per litre until March 2023 – set to save £3.30 off a typical tank, this is the first reduction in 20 years and the biggest ever cut.
- 5% VAT removed on energy-efficient measures for homeowners, such as solar panels, heat pumps and insulation (as an EU-imposed tax, this excludes Northern Ireland).
- The Household Support Fund, whereby local councils provide support to vulnerable families, is doubled to £1 billion.
Despite some expectations, there was no U-turn on the 1.25% National Insurance hike coming into play in April, but there were new measures to offer relief for UK households and businesses:
- The income threshold for National Insurance is to be increased to £12,570 from July to line up with income tax – Sunak claims this is a £6 billion tax cut for 30 million people, representing £330 each.
- An upcoming cut in the basic rate of income tax from 20% to 19% by the end of the government’s term in 2024 – Sunak states that this will be a £5 billion tax cut that is “fully costed and fully paid for”.
- Employment allowance increased from £4,000 to £5,000 from April – Sunak states this will offer relief to half a million small UK businesses.
- Small businesses to get a 50% discount on business rates from April.
- Business tax cuts on enterprise and innovation to be announced in the Autumn following a summer of consultations.
- The Office for Budget Responsibility (OBR) has revised its 6% growth forecast for the UK economy down to 3.8% for 2022, then 1.8% in 2023 and 2.1% in 2024.
- Annual inflation is predicted to average 7.4% this year and peak at 9% before coming under control by 2024, according to OBR forecasts.
- The UK has £83 billion of debt interest – the highest ever and four times more than last year.
- Current unemployment of 3.9% is forecast to further reduce each year.
Get ready for the new tax year
Although there is some relief in this Spring Statement, these are challenging times. The wheels are already in motion for an income and dividend tax rise next month, with frozen allowances and rate bands set to increase personal taxes over the next five years. The energy price hike from 1 April will put a further squeeze on most households as we navigate the highest inflation for 30 years.
This is a good time to check your finances are working as hard as they can, and that you’re making the most of all the available allowances and tax-efficient opportunities available. Contact us if you’d like a review of your financial situation.