The Chancellor of the Exchequer faced two major challenges in the 2022 Spring Statement; to ensure a more secure UK economy and reduce public debt, while simultaneously helping to alleviate the pressures of inflation.
Intense focus was on the Spring Statement as a last chance to make adjustments that could help businesses and individuals feeling the pressures of post-pandemic financial hardships brought about by the cost-of-living crisis and planned tax increases.
So, how did Sunak respond to these concerns?
The Statement essentially focussed on two areas of concern; support measures to help with increases to energy costs and a new tax plan which will prioritise making the cost-of-living crisis more manageable for families across the country.
Energy Support Measures
The first announcement focused on three immediate measures to help families cope with rising energy costs. These measures included:
- Fuel Duty Reduction - from 6pm on 23rd March 2022 fuel duty was reduced by 5p per litre, a measure set to be in place for a full 12 months.
- Green Tax Cut - for the next five years, homeowners making energy efficient home improvements such as solar panel installations and insulation will pay zero VAT.
- Household Support Fund - Local Authorities will be given the financial means to help the most vulnerable in their areas with a £1bn increase to the Household Support Fund.
Cost-of-living Crisis and Inflation Support
Amid the OBR’s projected 7.4% rise in inflation by the end of this year, Sunak shared his new tax plan focused on reducing and reforming taxes. The Chancellor’s “vision for a lower tax economy” included three key areas:
- Supporting families with the cost-of-living
- Creating a new culture of enterprise
- Letting people keep more of what they earn
1. Supporting families with the cost-of-living
Alongside the energy support measures, the Chancellor announced tax cuts on income to help families manage inflation. The most significant being the alignment of the National Insurance threshold with that of income tax.
Highlights of the announcement:
- The increase will take effect from July 2022
- Individuals will be able to earn £12,570 annually without paying income tax or National Insurance
- Mr. Sunak referred to this as the “largest single personal tax cut in a decade”
- This is projected to save employees on average over £300 a year
- No changes were announced to the planned Health & Social Care Levy, the 1.25% rate increase from April 2022 to both employees or employers
2. Creating a new culture of enterprise
In a bid to boost productivity and economic growth, tax cuts and allowances for businesses were announced, as well as the reformation of R&D Tax Credits to help increase capital investment.
Highlights of the announcement:
- 50% cut on business rates up to £110K for retail, hospitality and leisure sectors
- Employment allowance increase to £5,000 which will allow small businesses to reduce their employers National Insurance contributions bills each year
- Work with businesses will begin to discover effective ways to cut taxes on investment
- Review of Research and Development Tax Reliefs with the possibility of expanding qualifying costs
3. Letting people keep more of what they earn
Although not in effect until 2024, Rishi Sunak announced that the basic rate of income will be cut by 1%.
Highlights of the announcement:
- The basic rate of income tax will cut from 20% to 19%
- This is the first income tax cut in sixteen years
- Employees, pensioners and individuals with savings will benefit from this tax cut
- On average, taxpayers should be saving £175 a year
How can DSA Prospect help?
Please keep in mind that more news on these announcements will continue to develop and this is a merely a guide to some of the main points initially discussed.
We recommend seeking further consultation on any questions you may have regarding the 2022 Spring Statement and encourage you to get in touch with our team.
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