What the chancellor’s spring statement means for your finances
On 23 March, chancellor Rishi Sunak made his spring statement in parliament.
In his speech, the chancellor addressed main concerns of both British consumers and businesses, covering key factors including:
- The Russian invasion of Ukraine
- The cost of living crisis.
Read on to find out the measures the chancellor announced, and how these could affect homeowners, business owners, and taxpayers in the years to come.
Sunak first addressed the Russian invasion of Ukraine in his speech
As expected, one of the key points immediately addressed by the chancellor is the Russian invasion of Ukraine.
Addressing parliament, Sunak said, “We have a moral responsibility to use our economic strength to support Ukraine and impose severe costs on Putin’s regime.”
He then stated that the UK has provided around £400 million in military and humanitarian aid for Ukraine. He also claimed that the UK is imposing financial sanctions on Russian banks and wealthy individuals.
Not only is Russia’s invasion of Ukraine a humanitarian crisis, but the war has caused global market uncertainty.
Indeed, global supply chain disruptions and the ongoing war in Ukraine have caused the Office for Budget Responsibility (OBR) to revise their growth projections for the next five years.
The OBR now forecasts GDP to rise by 3.8% in 2022, down from its 6% growth forecast in last October’s economic and fiscal outlook.
The OBR then forecasts growth of 1.8% in 2023, 2.1% in 2024, 1.8% in 2025, and 1.7% in 2026.
The chancellor announced a series of measures to tackle the cost of living crisis
As you may already know, the cost of living has risen overall in the UK. Inflation reached 7% in March 2022 despite the Bank of England (BoE) raising the base rate to 0.75% in an attempt to slow this increase.
In response to the cost of living crisis, Rishi Sunak unveiled two key measures that could help everyday consumers shoulder these costs.
Fuel duty cut by 5p a litre until April 2023
Sunak announced that, with immediate effect, fuel duty will be cut by 5p a litre.
This measure will be in place until April 2023. The chancellor called this “the biggest cut to all fuel duty rates ever”.
VAT is reduced on energy-efficient home installations
In another effort to help households with rising energy prices, the chancellor announced that UK households will pay no VAT on energy-efficient home installations.
According to the Treasury, the average household installing solar panels will save around £1,000 on the initial installation cost, and approximately £300 a year on energy bills.
The chancellor’s 3-step tax plan
Sharing his “principled approach to cutting taxes”, Sunak revealed a three-step tax plan during his speech.
1. Help families with the cost of living
Last year, the prime minister announced that National Insurance contributions (NICs) would rise by 1.25 percentage points in April 2022. This measure will appear as the new Health and Social Care Levy on payslips from 2023.
Although it was rumoured that Sunak might withdraw this plan in light of the rising cost of living, the chancellor defended the increase in his statement, arguing that the NHS is still bearing the brunt of the pandemic and needs this support.
However, in a bid to help low earners, the chancellor has raised the National Insurance Primary Limit and the Lower Profits Limit, for the employed and self-employed respectively, from £9,880 to £12,570.
This means that Brits can now earn £12,570 a year without paying Income Tax or National Insurance. A typical employee could save £330 a year from this relief, and now, around 70% of UK workers will pay less NICs in the coming year, even when the Health and Social Care Levy is accounted for.
2. Help businesses to thrive in the coming years
As well as individual relief, Sunak set out measures to help businesses thrive. The chancellor announced that:
- The temporary £1 million level of the Annual Investment Allowance will be extended until 31 March 2023.
- The business rates multiplier will be frozen in 2022/23.
- There will be a new temporary 50% relief in Business Rates for eligible retail, hospitality, and leisure businesses. It means the average pub, with a rateable value of £21,000, will save £5,200. The average convenience store, with a rateable value of £28,500, will save £7,000.
- Business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage will be brought forward to April 2022.
- From April 2023, all cloud-computing costs associated with R&D, including storage, will qualify for R&D relief.
- The Employment Allowance will increase to £5,000. This means eligible employers will be able to reduce their employer NICs bills by up to £5,000 a year, and that businesses will be able to employ four full-time employees on the National Living Wage without paying employer NICs.
The chancellor also announced he would be consulting on more measures that may be addressed in the autumn Budget.
3. A proposed reduction of Income Tax by 1% in 2024
Finally, Sunak theorised that, by 2024, inflation is expected to be under control. What’s more, he claims that debt should be reducing sustainably, and the economy is expected to be growing too.
If this is the case, the chancellor committed to reducing the basic rate of Income Tax from 20% to 19% from April 2024.
If the spring statement announcements affect you, get in touch
If these announcements will affect you in the years to come, it could be wise to get in touch with your Chancellor financial adviser.
You might be worried about the cost of living crisis, along with the Russian invasion of Ukraine, and how your financial stability could be impeded by world events in the years to come.
Your Chancellor financial adviser can help provide you with valuable peace of mind as we head through uncertain times. We can provide a comprehensive review of your financial circumstances, discuss the effects of the chancellor’s announcements on your wealth, and provide friendly guidance on growing in the coming years.
Email email@example.com, or call 01204 526 846 to speak to an advisor.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investment can fall as well as rise and is not guaranteed.