The Chancellor of the Exchequer presented his Spring Economic Statement 2022 to parliament in the backdrop of the Ukraine invasion, inflation sitting at 6.2% and rising, an energy crisis and household incomes being squeezed.
The rising inflation is expected to reduce UK real household disposable incomes on a per–person basis by 2.2 per cent in 2022–23, according to the UK fiscal watchdog.
The decline would mark the biggest fall in living standards in any financial year since Office for National Statistics records began in 1956–57.
The statement included several measures designed to help UK households cope with the rising cost of living, but critics have argued that the measures (which are included) below won’t scratch the surface on the crisis.
See below key points from the Chancellor’s address along with economic forecasts:
Key Measures – Summary
•Fuel duty is being cut by 5p a litre•VAT being cut to zero on energy saving devices, such as solar panels.•NI Threshold rises to £3,000 representing a saving for 13 million people that amounts to a tax cut of £330 a year.•In 2024, the basic rate of income tax will be cut from 20p in the pound to 19p in the pound.
Economic Growth – revised forecasts
•UK economic growth this year, and next year, will be slower than forecast at last autumn’s budget, as headwinds hit the economy (rising inflation, the Ukraine war).•For 2022, growth has been revised to 3.8%, down from 6.0% growth forecast in last October’s economic and fiscal outlook.
Rising Inflation
•The Office for Budget Responsibility now estimates inflation will average 7.4% this year – meaning a squeeze on families, with real wages likely to fall through the year for millions of workers.•Inflation hit 6.2% in February. The energy price cap is 54% in April (with another rise feared in the autumn), and commodity prices are being pushed up by the Ukraine war, so 2022 will bring much more pain to households.
MeasuresFuel Duty
•Sunak stated he is announcing three measures to help with energy costs.•Fuel duty is being cut by 5p a litre, Sunak stated.•He stated this is the biggest cut to fuel duty ever. It will be in place until March next year. It is worth more than £5bn and it will take effect from 6pm
Energy Saving Devices VAT Cut
•The Chancellor stated the government can now cut VAT on energy efficiency measures.•VAT being cut to zero on energy saving devices, such as solar panels.•This could cut the cost of having a solar panel installed by £1,000•Northern Ireland will not get this because of the protocol, he stated. But he stated Northern Ireland will get equivalent funding.•Sunak stated he is putting another £500m into the household support fund, which allows councils to help poorer families.•Underlying debt is falling but he stated small changes to the economic outlook could wipe out this headroom.•He stated that this year the government will be spending £83bn on debt interest. That is the highest amount on record, and almost four times what was spent last year.
Principles behind new tax plan
•The Chancellor stated he is still committed to cutting taxes by the end of this parliament.•Today he is publishing a tax plan and the government will continue to be disciplined.•The new plan will build a strong economy by reforming taxes in three ways:
1.it will help families; create2.the conditions for higher growth3.share the proceeds of growth fairly.
Tax Cut and NI Threshold
•The threshold was due to go up by £300, but instead it will go up by £3,000.•This means it will be equivalent to the income tax threshold.•That is a £6bn tax cut for 13 million people and that amounts to a tax cut for people of £330 a year.•It is the single biggest tax cut for a decade, he stated, and the IFS said it was the best step to take. He stated 70% of workers will have their taxes cut by more than they pay for the new levy.•The Chancellor stated R&D tax credits are being reformed and, in the autumn, he will decide whether to make the R&D expenditure credit more generous. In the autumn he will cut tax rates on business investment.•The Chancellor stated the business rates discount coming into effect next month for retail, hospitality and leisure businesses will save them up to £110,000. A typical pub will save £5,000, he stated.•A new tax cut for small businesses, an allowance for workers they employ, will save them up to £1,000.
Income Tax Rate Cut
•The Chancellor stated before the end of this parliament, in 2024, the basic rate of income tax will be cut from 20p in the pound to 19p in the pound.•The Chancellor stated income tax has only been cut twice in 20 years. That shows how hard it is to do.•Covid and the war have made that harder. It would be irresponsible to meet that ambition – cutting tax – this year.•The Chancellor refuses to let that ambition wither, he stated.•The Chancellor stated this is fully costed in the plans announced today.•The Chancellor he can say this because the government has been responsible with the public finances.•The Chancellor stated the government has a record of cutting tax. He ends by saying his tax plan will deliver the biggest net cut to personal taxes in more than a quarter of a century
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