Today, when the Chancellor stood up to deliver the Spring Statement 2022, he had the weight of many expectations on his shoulders. The cost of living crisis, already ramped up by the COVID pandemic, has over the last month been made worse by the war in Ukraine. Fuel prices are now exorbitant. Food prices are on the up and are set to soar, especially as both Ukraine and Russia are two of the world’s largest exporters of grain. Then there are the eye-watering energy price increases, already at record highs and threatened further by Russia’s control over much of Europe’s gas supply.
There’s also the matter of inflation. Consumer Price Index inflation hit 6.2% in February. This is the highest rate for 30 years. The OBR expect inflation to hit 7.4% later this year.
Against such a backdrop, Sunak was always going to find it difficult to square the circle. How could he help ameliorate the cost of living crisis in a time of international crisis, collapsing supply chains and unprecedentedly expensive energy – not to mention the escalating cost of borrowing?
This is what he announced.
3 measures to help with the cost of living
The Chancellor announced three new measures at the beginning of his statement. These, he argued, were designed to have an immediate impact on the cost of living crisis.
- A 5p per litre cut in fuel duty. This will be introduced at 6pm tonight (23rd March 2022) and remain in place until April 2023. This will be worth over £5 billion in total.
- 0% VAT on energy saving measures. Households investing in energy saving measures such as solar panels, heat pumps and insulation will now pay 0% VAT. However, this measure cannot currently be applied to Northern Ireland because of the NI Protocol. Instead, government will increase Barnett funding to Northern Ireland until the measure can be implemented.
- Extra money for the Household Support Fund. This fund is run by councils for people experiencing financial hardship and helps them to pay for food and energy bills. The amount available will double from £500 million to £1 billion.
A new tax plan
Rishi Sunak had been under pressure to abolish the new Health and Social Care levy which will see National Insurance contributions rise. He did not bow to this pressure – the additional levy will be introduced from next month, as planned.
However, the Chancellor did announce that the Treasury will publish a new tax plan today. He said this this would reduce and reform tax in three ways.
- Help families with the cost of living
- Create the conditions for growth
- Share the proceeds of growth more fairly
The most eye-catching aspect of the new tax plan was a major reform of National Insurance thresholds. The NI threshold will rise some £3,000 to match the current Income Tax threshold of £12,570. The Chancellor claimed this would be worth an average of £330 per employee. He also said that approximately 70% of workers will have their NI cut by more than the extra amount they’ll pay via the Health and Social Care levy.
To create the conditions of growth, Mr Sunak said he would be working with businesses to help them invest more in training, to reform and expand R&D tax credits and cut tax rates on business investment. We can expect further announcements on these topics in the autumn.
In addition, from next month, the Employment Allowance will increase to £5,000, meaning eligible employers will pay less National Insurance.
Finally, while the Chancellor said it would be irresponsible to cut Income Tax in the current climate, he asserted his ambition to do this before the end of the current parliament. As the Office for Budget Responsibility believes inflation will be under control by 2024, Mr Sunak said that he would cut the basic rate of Income Tax from 20p to 19p by that date.
Spring Statement – what next?
How far the new package of measures in the Spring Statement will alleviate the cost of living crisis remains to be seen. Given the current backdrop of war and sanctions, the future remains highly unpredictable. However, in the coming weeks we will be looking at the Chancellor’s announcements more closely and advising you on how they may affect your finances – or those of your business.
About Ben Locker
Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.