Spring Budget 2022
Yesterday, chancellor Rishi Sunak delivered his Spring Statement, setting out the government’s tax and spending plans and forecasts for the UK economy.
The Spring Statement, one of two financial statements the chancellor makes every year, does not normally see big tax and spending decisions announced. Yet this Budget was set against a backdrop of rising fuel, energy and food costs. Figures from the Office for National Statistics have shown prices have risen by 6.2% in the past 12 months to February – the fastest for 30 years, and the war in Ukraine is expected to push food and energy prices even higher. The OBR now predicts inflation will hit 7.4% by the end of the year.
The chancellor opened his speech with a focus on Ukraine, warning that the war will make price pressures worse – and that a stronger British economy was vital in responding to the “challenge to our values” presented by Russian President Vladimir Putin. Acknowledging the pressures of prices rises, Rich Sunak went on to set out a Budget which aims steer a course through unprecedented times. Whilst we all know the country is facing economic challenges, the chancellor’s Spring Statement did confirm one thing, and that is consumers should be braced for things getting more expensive at a faster rate later in the year.
We have summarised the key points from the Budget which may aﬀect our financial planning clients. The full Budget report, which includes the impacts for businesses, can be read by visiting the www.gov.uk website.
- Forecasts from the Office for Budget Responsibility show the economy will grow by 3.8% this year, much lower than the previous prediction of 6%.
- Gross Domestic Product (GDP) is the value of goods and services produced by a The chancellor announced the rate was expected to grow by 1.8% next year, by 2.1% in 2024 and 1.8% in 2025.
- The annual inflation rate, which measures the prices changes of goods, was 6.2% in It is likely to average 7.4% for the rest of this year, but with peak of 8.7% in the final quarter of 2022.
- The unemployment rate, which is currently at 3.9%, is now predicted to be lower in every year of the OBR’s forecast. The number of people employed between now and 2027 is expected to be 400,000 lower than before the pandemic. This is because of early retirements, long-term sickness and fewer workers arriving in the UK.
- Borrowing as a percentage of GDP is expected to fall from 83.5% of GDP in 2022/23 to 79.8% in 2026/27. The government is forecast to spend £83bn on debt interest in the next financial year, the highest on record.
Tax and National Insurance
- Sunak said the planned 1.25 percentage point rise in national insurance contributions announced in September must remain, as a “dedicated funding source” for health and social care.
- The income threshold for at which point people start paying National Insurance will however rise to £12,570 in In practice, the two national insurance measures will mean that, from July, anyone earning less than about £35,000 a year will pay less national insurance. Over time, this threshold is frozen, which will steadily mean more low-earners will have to pay.
- The basic rate of income tax will be cut from 20% to 19% in 2024, the first income cut in income tax for 16 years.
- The Employment Allowance, which gives relief to smaller businesses’ National Insurance payments, will increase from £4,000 to £5,000 from
Benefits and Pensions
- Benefits and the state pension are rising by 3.1% in April, well below the rising cost of This prompted many charities to call on the chancellor to go further. Mr Sunak did not agree, saying nothing new about benefit and pension levels in the Spring Budget. If inflation does reach the levels predicted by the OBR, then benefits and the state pension could see a significant rise in April 2023 – as the increases are usually linked to the inflation rate in the preceding autumn.
- Fuel duty will be cut for only the second time in 20 years, by 5p a litre until March 2023. Sunak announced this was “a tax cut worth over £5 billion”.
- The government is cutting the 5% VAT rate for households installing solar panels, heat pumps, insulation to zero. The Chancellor said the policy will not apply immediately to Northern Ireland due to “deficiencies” in the Northern Ireland Protocol, but added support would be offered.
- The government’s household support fund is being doubled to £1bn, providing local authorities with more funding to help vulnerable households with rising living costs.
- Nothing new was announced in the Budget to tackle rising energy prices. Mr Sunak said he had already taken “decisive action”, in helping people with their energy bills, this includes a £150 council tax rebate for 80% of households, followed by a £200 discount on bills in October which will need to be repaid, and an expansion to a support scheme for vulnerable people.
- Sunak announced reforms to research and development tax credits, saying the generosity of reliefs for business investment will be increased to boost UK
- The government has promised to cut tax rates on business investment in the Autumn
- The employment allowance for small businesses will be increased to £5,000 – a tax cut worth up to £1,000 for half a million small firms starting in two weeks’
If you would like to speak to an adviser about how the changes in the 2022 Budget may impact your personal finances, then call 0116 269 6311 or email info@furnelyhouse,co.uk
You can read the full 2022 Budget report here: https://www.gov.uk/government/publications/spring-statement-2022-documents/spring- statement-2022-html