UK Spring Statement 2022
The much-anticipated Spring Statement from UK Chancellor Rishi Sunak was delivered on 23rd March in Parliament with multiple pressing issues on the agenda such as the cost-of-living crisis, in particular the soaring costs of energy which has been exacerbated by the war in Ukraine and the impending 1.25% increase in National Insurance from April 2022 to fund the NHS and social care services. We outline the main points from his statement to tackle the aforementioned exigencies being faced by Britons.
Increase in National Insurance threshold by £3000
In response to calls for postponing or outright removing the planned 1.25% increase in National Insurance, the Chancellor has instead decided to provide an uplift of £3000 to the National Insurance threshold bringing it to £12,570 which aligns it with the Income Tax threshold. The increase is expected to take effect from July 2022. The higher threshold will cost the Treasury an approximated £6bn in tax receipts whilst providing taxpayers with an estimated relief of circa £330. However, the freeze in Income Tax thresholds for the 2022-23 tax year has enabled the Chancellor to implement this policy change since more funds should be collected through Income Tax following expected wage rises as a result of inflation.
Increase in Employment Allowance from £4000 to £5000
SME’s can rejoice as the relief available to employers in relation to their contribution for National Insurance is planned to increase by up to £1000 from April 2022 which encourages them to hire more employees. Many have criticized Employer’s National Insurance as a tax on employment which disincentivizes employers from taking on additional staff. The higher allowance should offset this to some extent and propel the UK economy’s recovery following Covid-19 by improving the cash flow prospects of SME’s which are likely to find it harder to raise finance relative to their larger counterparts. It would yield an expected saving of approximately £150.5 (15.05%*£1000) per annum.
Cut in Fuel Duty by 5p per litre
From 6pm on Wednesday 23rd March, the government will introduce the first ever cut to fuel duty in over 20 years to support motorists in tackling the soaring costs of fuel. Fuel prices have experienced an astronomical 20p per litre rise since the start of the year which has eroded the financial stability of households across the UK with groups such as graduates who’re new into the workforce and individuals on low incomes who rely on travelling to work using a private vehicle being hit particularly hard. Yet the possibility of station operators and retailers failing to pass on some or all of the benefit of the duty cut to augment their profits presents a very real risk to the average consumer who may not derive any benefit from this.
Zero-rate VAT applied to energy saving installations
In line with the global sustainability drive to decarbonize economies and ensuring reduced reliance on fossil fuels, the Chancellor has announced the ability for consumers to acquire energy saving products without having to pay any VAT on them. The current 5% VAT levy is equivalent to the VAT rate on domestic heating and fuel and still less than the standard-rate of 20% applied to most products which suggests the Chancellor is keen position the UK as a global leader in sustainability and to maintain progress towards a net-zero economy despite the damage caused by Covid-19. Yet, many have argued this move is of minimal use to middle and lower income earners who are unlikely to be able to afford such products even after the reduction in the rate of VAT which tilts the policy’s benefit in favour of those capable of capitalizing on these tax changes.
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