UK inflation rose to 6.2% in the 12 months to February as fuel, energy and food costs surged adding to the pressure on Chancellor Rishi Sunak to offer more support to households and businesses in his Spring Statement today.
Yesterday we predicted, along with many others, that we would see a cut in fuel duty, an increase in Universal Credit and a rise in the threshold for National Insurance. We saw the fuel duty cut, and a change to the NI threshold and the partial “rabbit out of the hat”, was an income tax cut, but not until April 2024.
Here’s a closer look at what Mr Sunak had to say.
Today Mr Sunak began with a statement of support for Ukraine, adding that the UK can provide this support because of our stable economy. He went on to say that the actions taken to sanction Putin are not cost free at home, with the Office of Budget Responsibility recognising the uncertainty this global threat has on our economic growth in its latest growth forecast of just 3.8%.
The OBR further expects that inflation could average 7.4% this year. To help with the rising costs of living the Chancellor announced three immediate measures:
- Motorists – fuel duty cut by 5p litre until March 2023, from 6pm this evening
- VAT cut to 0% on installing energy efficiency measures – for the next 5 years homeowners installing energy saving materials like solar panels, heat pumps, insulation, wind or water turbines will not pay VAT
- Doubling the Household Support Fund to £1 billion, distributed by local authorities from April
The Chancellor went on to say:
” We are helping families with cost of living, creating the conditions for accelerated growth and productivity and making sure the proceeds of growth are shared fairly.”
As part of this three point commitment, Mr Sunak reiterated his plan to reduce taxes by the end of this Parliament, but in a responsible and sustainable way and went on to announce the publication of his tax plan, and some specific measures within it:
- An alignment of the NI Primary Threshold and Lower profits Limit with Income Tax Personal Allowance with effect from July 2022. This means working people can earn £12,570 before paying tax or Class 1 or Class 4 National Insurance. Class 2 NICS will also be reduced.
- Business support measures including the newly announced cut in fuel duty and increasing the Employment Allowance from £4,000 to £5,000 from April 2022, bringing forward an exemption on business rates for green technology, reforming R & D credits from April 2023 and planning to encourage greater business investment once the super deduction ends in 2023.
- Income tax – the government will cut the basic rate of income tax by 1p in the pound from April 2024.
We will be taking a more detailed look at the Chancellor’s Spring Statement and his tax plan over the coming days.
