Spring Statement 2022
- Shunil Roy-Chaudhuri
- 25 March 2022
- 5 mins reading time
Chancellor of the Exchequer Rishi Sunak opened his Spring Statement by declaring that we can confront the challenge to our values from Russia’s invasion of Ukraine by strengthening our economy. But he also pointed out that the invasion represents a risk to the UK’s economic recovery.
Against this background, the Office for Budget Responsibility (OBR) is forecasting the following economic growth and unemployment figures. Soberingly, the 3.8% economic growth figure for 2022 has been brought down from the 6.0% estimate at the time of the October 2021 Budget. Moreover, Sunak pointed out that these figures haven’t accounted for the full effects of Ukraine.
More positively, the unemployment estimates are lower than in October. But the OBR expects the inflation rate, which rose to 6.2% in February, to increase to 7.4% for 2022 as a whole. This would represent a significant rise in the cost of living for many of us.
A key driver of inflation is an increase in energy costs, due in part to the spurning of Russian oil and gas supplies by governments and corporations. Sunak has, however, introduced a series of measures to help us cope with these rising costs. These include:
Duty on fuel to be cut by 5p per litre until March 2023
Removal of VAT for the next five years on energy saving materials such as solar panels, heat pumps and insulation, as well as wind and water turbines (although this won’t apply in Northern Ireland)
Doubling of funding to £1bn for local authorities to provide targeted support to vulnerable households.
Turning now to personal taxes, the Chancellor said the forthcoming Health and Social Care Levy, which was announced in September 2021, will remain in place. The levy was created to provide funding for the NHS and other health and social care bodies. It is, in effect, a new 1.25% tax that will be added to national insurance payments from 6 April 2022 but will appear as a standalone levy from 6 April 2023.
Sunak announced that the national insurance threshold will now rise from £9,500 to the same level as the personal tax allowance, at £12,570. He estimates that, for 70% of workers, this national insurance saving will more than offset the new levy.
He also said that, before the end of this parliament in 2024, the basic rate of income tax will be cut from 20% to 19%. And he pointed out that this commitment is supported by the OBR’s expectation that inflation will be back under control and debt will be sustainable by 2024.
Finally, the Chancellor announced a commitment to cutting taxes on business investment and innovation, the details of which will be worked out for the next Budget.
The combined impact of the pandemic and the Russian invasion have helped drive inflation but dampen economic growth. The Chancellor has provided some counterbalancing measures but the cost of living looks set to rise for many of us.
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