Spring Statement 2022

How will the Chancellor’s Spring Statement 2022 impact you…

Amid rising pressure to bring in significant relief measures to combat the current international emergency, Chancellor Rishi Sunak implied ahead of time that he could only do so much.

Speaking at the weekend, he acknowledged concerns about price hikes and inflation, vowing to stand by people in the same way he’s “done over the past couple of years”. But, in the same breath, the Chancellor warned that the Government couldn’t “completely protect people against some of the difficult times ahead”.

After all, this year’s Spring Statement was only ever intended to be an economic update, released alongside the Office of Budget Responsibility’s new forecast.

Now, against the backdrop of the most turbulent period in recent European history, a soaring cost of living crisis with inflation hitting a 30 year high, and on the second anniversary of the UK’s first lockdown, we’ve received slightly more than a brief update.

To begin with, Sunak emphasised that the “measures taken to sanction Putin’s regime are not cost-free for those of us at home” and that the OBR had reported “unusually high levels of uncertainty” about the future of the UK’s economy.

He went on to announce three immediate measures designed to “help people right now”, including cutting fuel duty, scrapping VAT on energy-efficient home improvements, and doubling the household support fund.

“Is that it?” cried one vocal member of Parliament during the speech. But there was more.

While hopes of a significant rescue package – like we saw during the height of the COVID-19 pandemic – may have been somewhat dashed, the Chancellor did have a few more announcements up his sleeve.

These included raising the National Insurance contributions (NICs) threshold, increasing the employment allowance, and, perhaps most notably, cutting the basic rate of income tax to 19% from 2024.

But will it be enough to help households and businesses across the UK meet their skyrocketing costs?

Here’s how the Chancellor’s Spring Statement  2022 might impact you…

INTRODUCTION

Amid rising pressure to bring in significant relief measures to combat the current international emergency, Chancellor Rishi Sunak implied ahead of time that he could only do so much. Speaking at the weekend, he acknowledged concerns about price hikes and inflation, vowing to stand by people in the same way he’s “done over the past couple of years”. But, in the same breath, the Chancellor warned that the Government couldn’t “completely protect people against some of the difficult times ahead”. After all, this year’s Spring Statement was only ever intended to be an economic update, released alongside the new Office for Budget Responsibility (OBR) forecast. Now, against the backdrop of the most turbulent period in recent European history, a soaring cost of living crisis with inflation hitting a 30 year high, and on the second anniversary of the UK’s first lockdown, we’ve received slightly more than a brief update. To begin with, Sunak emphasised that the “measures taken to sanction Putin’s regime are not cost-free for those of us at home” and that the OBR had reported “unusually high levels of uncertainty” about the future of the UK’s economy. He went on to announce three immediate measures designed to “help people right now”, including cutting fuel duty, scrapping VAT on energy-efficient home improvements, and doubling the household support fund. “Is that it?” cried one vocal member of Parliament during the speech. But there was more. While hopes of a significant rescue package – like we saw during the height of Covid – may have been somewhat dashed, the Chancellor did have a few more announcements up his sleeve. These included raising the National Insurance contributions (NICs) threshold, increasing the employment allowance, and, perhaps most notably, cutting the basic rate of income tax to 19% from 2024. But will it be enough to help households and businesses across the UK meet their skyrocketing costs? Here’s how the Chancellor’s Spring Statement might impact you. 

Important information 

The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The information in this report is based upon our understanding of the Chancellor’s 2022 Spring Statement, in respect of which specific implementation details may change when the final legislation and supporting documentation are published. This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based upon its content. Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

ECONOMIC OUTLOOK

Two years to the day after the commencement of the first UK lockdown in response to the surge of COVID-19 cases throughout the country, Chancellor Rishi Sunak delivered his Spring Statement to Parliament. While the Government has essentially declared victory over the pandemic, the public finances still don’t appear all that positive – even when you keep in mind that 2020 marked the largest annual fall in GDP recorded in the UK in 300 years (9.9%). For instance, on the morning of the Chancellor’s speech, the Office for National Statistics published its latest inflation estimate for February 2022 – 6.2% – caused by surging fuel and energy prices, exacerbated by the war in Ukraine. Sunak kicked off his speech with a summary of an economic forecast from the OBR, which is required to publish such reports twice a year. The forecast suggests the UK will not experience as large a period of growth as previously predicted, as the OBR downgraded its GDP forecast for 2022 to 3.8% from the 6% it predicted in October 2021. It’s a far cry from its prediction in March last year that we’d see 7.3% growth in 2022, but global supply chain issues, a cost of living crisis and sanctions against Russia have hampered a similar recovery rate. GDP will then grow by 1.8% in 2023, and 2.1%, 1.8% and 1.7% in the following three years, according to the OBR. However, it has also revised down its unemployment expectations, estimating unemployment for Q1 2022 to be 3.9%, which is 1.1 percentage points lower than expected. It added that, given the current combination of record-high vacancies and low redundancies, the slowdown in GDP growth may only cause unemployment to rise “very slightly”. The Consumer Price Index (CPI) for inflation, meanwhile, is now expected to peak at 8.7% in Q4 2022, which would be the highest inflation rate since the 1979 oil shock. That’s double what the OBR predicted in October 2021 and was worked out with a set of market assumptions taken over the first week of the invasion of Ukraine. With most working age benefits and state pensions due to rise by 3.1% in April 2022, the OBR also said nominal wages will not rise fast enough to prevent a “significant fall in real incomes”. However, after the peak at the end of this year, inflation will fall closer to the Bank of England’s target of 2%, at 1.5% by the end of 2023, the OBR said. Public sector net debt, including that from the Bank of England, will equate to 95.5% of national GDP in the 2022/23 financial year, compared to 95.6% and 94% in the past two years. It will then decrease to 94.1% in 2023/24 and 91.2% in 2024/25, and 85.8% and 83.1% in the two financial years thereafter.

“It’s hard to overstate the scale of the cost of living crisis coming... But while our household finances are being hammered, the public finances have actually improved.” 

Torsten Bell, chief executive of the Resolution Foundation.

HEADLINE ANNOUNCEMENTS

Increasing the primary threshold and lower profits limit