Chancellor unveils Spring Statement, March 2022

Date : 24 March 2022

The Chancellor has unveiled the Spring Statement, announcing a number of short-term changes to deal with the cost-of-living crisis alongside a long-term tax plan.

Countering the cost of living

The National Insurance Contributions (NIC) threshold has been increased from £9600 to £12600. This brings the NIC threshold in line with the income tax threshold from July 2022. This policy essentially cancels out the 1.25% NIC increase commencing from April 2022. Initial analysis from the Resolution Foundation estimates that those earning under £32,000 will pay less in NIC’s following the impact of these policies.

Fuel duty has been cut by 5p a litre for 12 months. The RAC estimates this to be a saving of around £3 for filling up the average car. It is worth noting that oil prices are at significantly elevated levels ($120 per barrel) and analysts expect demand to outstrip supply into the medium term.

The Household Support Fund has been doubled to £1bn to support the most vulnerable households. This is to be distributed through local authorities.

In advance of the Government’s energy strategy expected to be announced next week, VAT has been cut from 5% to 0% on energy efficiency materials such as solar panels and insulation.

Longer term tax plan

The headline policy in the Tax plan was a cut in income tax from 20p to 19p in the pound by the end of this Parliament in 2024. Alongside an income tax cut, the Government has announced a change in the tax system to drive capital investment, skills training, and innovation.

  • The tax system will be altered to encourage businesses to offer adult technical skills qualifications and training. This will include a change in the operation of the apprenticeship levy.
  • A reform to Research & Development tax credits.
  • A promise to cut tax rates on business investment.

The Chancellor stated that the Tax plan “represents the biggest net cut in personal taxes in over a quarter of a century.”

However, initial analysis by the Resolution Foundation and Institute of Fiscal Studies suggests taxes will increase for the majority over the next few years. The Resolution Foundation predicts that by 2024/25, 27 million of the 31 million workers will be paying more tax. This is primarily due to the 4-year freeze in income tax bands announced in last year’s Spring Budget. As incomes rise due to inflation, the amount of tax paid by workers increases as they move into higher income tax bands.

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