The 2022 Spring Budget has come at a time when the British people are facing a rising cost of living. The rising energy cap means the fuel bills for around 18 million households will go up by an average of £693 a year.
VAT is rising for some businesses, food prices have also risen sharply, and petrol prices have reached a record high. At the same time, the sanctions against Russia because of their invasion of Ukraine are also putting a strain on the UK economy.
On the 23rd March 2022, Chancellor Rishi Sunak delivered the Spring Statement to Parliament to announce the significant upcoming spending and tax changes, as well as changes to personal taxes and fuel duty. Here are the key announcements from the 2022 Spring Budget.
The previously planned 1.25% rise in national insurance contributions will remain in place.
While national insurance contributions are rising, the primary threshold at which national insurance needs to be paid is rising from £9880 to £12570 in July 2022, meaning that those earning less than £34,000 will be paying less national insurance over the year than they did last year.
One of the key announcements of the 2022 Spring Budget was the change to income tax. The basic rate of income tax will be reduced from April 2024, from 20% to 19%. The Chancellor said that this would be the first income tax cut in 16 years. Some commentators have pointed out that the overall tax burden is going in the opposite direction.
Cost of living
The rising cost of living has been widely reported, but the Office for Budget Responsibility (OBR) forecasts have shown that inflation will average 7.4% this year. Some of the measures to combat this were outlined in the spring budget:
● There will be a temporary cut in fuel duty of 5p per litre for 2022/2023 to try and help against the record-high fuel prices.
● The government will reduce the 5% VAT rate for households installing solar panels, heat pumps or insulation to zero.
● The government’s household support fund will be doubled to £1bn.
● There will be an increase in the household support fund of £500m for 2022/2023.
● The energy bills rebate set out in February will grant a one-off council tax rebate of £150 to all households in bands A to D in April 2022. There will also be an upfront discount of £200 on energy bills in 2022, which is repayable in annual instalments of £40 from 2023.
The Chancellor announced in the 2022 Spring Budget that borrowing in the 2022-2023 financial year would be 3.9% of GDP, down from 5.4% in 2021-2022. In the previous forecasts in October 2021, the OBR had estimated borrowing to be 7.9% of GDP in 2022-2023.
Changes are being made to research and development tax credits, with reliefs for business investment being increased to boost UK productivity.
There will be an increase in the employment support allowance (which reduces employers’ national insurance contributions) from £4000 to £5000.
The Chancellor announced that the UK economy would grow 3.8% this year, according to forecasts from the OBR. This figure has come down from the forecast of 6% growth given in October 2021. The forecasts also show that GDP will grow by 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026.
Investments are being made to improve compliance and fraud reduction in tax and benefit systems, which is expected to generate £510m in 2022-2023, rising to £1.3bn in 2026-2027.
Reforms are being made to the higher education funding system, including student loans. The measures are expected to save the government £35.4bn over the next six years.
The cuts included in the 2022 Spring Budget undo a quarter of previously announced tax rises such as the health and social care levy. The measures announced, including those announced since the 2021 autumn budget, have an estimated exchequer cost of £10.7bn in 2022-2023, but will improve the public finances by £1.4bn in 2023-2024, and £2.5bn in 2026/2027.
If you have questions about how these changes will impact you or your business, you are welcome to get in touch with our team of experts.