Spring Statement 2022: here’s what you need to know

Sunak announces tax cuts to help households with the cost of living crisis

rishi sunak
(Image credit: HM treasury)

Chancellor Rishi Sunak announced a number of changes in his latest Spring Statement in a bid to help soften the blow of the cost of living crisis.

Key announcements include an increase in the National Insurance threshold, fuel duty rate cuts, and an income tax cut for basic rate payers in 2024. 

There were no targeted measures for young people or pensioners.

Here’s everything you need to know about the Spring Statement.

National insurance threshold increased

Sunak insisted that the planned 1.25 percentage point rise in National Insurance (NI) next month must go ahead to cover the cost of health and social care. However, he hiked the threshold at which workers start to pay NI by much more than experts were expecting; raising it by almost £3,000 to match the income tax personal allowance. 

It means that from July workers will pay National Insurance contributions (NICs) on earnings above £12,570 a year - a sharp increase from the current £9,568 level, and the higher £9,880 threshold that will kick in next month. 

The chancellor said that by aligning NI with income tax, 70% of workers who pay NICs will pay less of it, even after accounting for the health and social care levy. Almost 30 million workers will benefit, including 2.2 million people who will be taken out of paying NICs altogether. 

A typical employee will save over £330 a year, according to the Treasury.

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From July, estimates from wealth management firm Quilter show that someone earning £20,000 a year will be around £267.78 a year better off, paying £1,073.12 in NI rather than £1340.90. Meanwhile, someone on £30,000 a year will pay £2,398 a year rather than £2,665 - leaving them £267 extra in their pay packet.

James Ventress from Quilter explains: “People with a salary below £34,300 will benefit from the change in threshold (compared to 2021/22 levels) and for salaries above there will be a loss - though less loss compared with if the threshold was not changed.”

Income tax cuts

Sunak said the government will also cut the basic rate of income tax. In April 2024, it will fall from 20p to 19p in the pound, benefitting 30m workers, pensioners and savers. It will make the average taxpayer £175 a year better off.

The chancellor said it will be the first cut to the basic rate in 16 years.The cut will affect England, Wales and Northern Ireland; Scotland has its own income tax system, which already has 19p as its lowest rate.

Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher, called the one penny drop to the basic rate of income tax a “tactical and political move from the chancellor”. 

He said: “Assuming it comes into effect from April 2024, the first payslip you will see this in will arrive at the same time as election leaflets ahead of the next planned General Election in May 2024 - a coincidence, or a well-planned strategy?”

Fuel duty

Sunak announced a widely-trailed 5p cut to fuel duty as motorists struggle with record fuel costs. The 5p cut per litre will start at 6pm on 23rd March. It will last a full year until the end of March 2023. Sunak described it as a “tax cut for hard-working families worth £5bn”.

It means someone with a typical 55-litre car will save £3.30 when they go to the petrol station, according to motoring group RAC. The average price of a litre of petrol has risen by more than 40p since March 2021.

Jason Hollands, managing director of investing platform Bestinvest, said: “The 5p cut to fuel duty will be welcomed by motorists, but given the scale of the surge in petrol prices over the last year, this is like applying a plaster to a major wound.”

Support for lower income households

Local councils will receive another £500m for the Household Support Fund from next month, creating a £1bn fund to help vulnerable households with rising living costs.

The Money Advice Trust, a charity, welcomed the increase – but urged the government to go further to match the scale of the financial challenge facing households. Its research shows that one in seven (an estimated 7.9 million) adults is behind on at least one household bill and one in eight (an estimated 6.2 million) have already gone without heating, electricity or water in the last three months.

By allocating the cash to local councils, it means people will need to be aware that help is available and what criteria they need to meet to be eligible. They will also need to proactively apply for financial support. If you’re confused about what is on offer - and whether you qualify - speak to your council, or contact Citizens Advice

Becky O’Connor, head of savings and investing at investment platform interactive investor, noted: “Doubling the support fund for vulnerable households is welcome – we don’t yet know if it will be enough.”

VAT on energy-saving measures

From April, homeowners installing solar panels and heat pumps will not pay any VAT, after the chancellor reduced the 5% rate to zero for the next five years. Other energy-efficiency materials such as roof insulation are also included. 

Sunak said in his Spring Statement that a typical family having roof solar panels installed would save more than £1,000 in total, and then £300 annually on their energy bills.

Alan Pearce, VAT partner at Blick Rothenberg, commented: “The 5% reduced rate of VAT that currently applies to eligible energy saving materials will be reduced to zero. In addition, the strict limitations introduced by the EU will also be scrapped. These meant that the VAT relief was often limited to certain residential properties and to eligible persons such as those in receipt of benefits and the over 60s.

“The chancellor appeared to sweep these restrictions aside and open up the relief to all.”

See how one reader has tackled her energy bills by selling her car to buy an electric cargo bike and install solar panels in partnership with her local authority. 

Business investment

The chancellor declared “something is not working” with UK investment in productivity and promptly announced several measures.

These include the employment allowance for small businesses rising from £4,000 to £5,000 on April 6. This equates to a tax cut worth up to £1,000 for half a million small businesses.

There will be no business rates due on a range of green technology used to decarbonise buildings, including solar panels and batteries, whilst eligible heat networks will also receive 100% relief. 

There will also be reforms to research and development tax relief, the little-known government incentive that rewards firms for investing in innovation, and a tax rate cut on business investment in the Autumn budget.

Ruth Emery is contributing editor at The Money Edit. Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.

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