Summary of Spring Budget 2022 and impact on you and your business
2 years today the pandemic began. The then newly appointed Chancellor of the Exchequer, Rishi Sunak, gave the much needed financial help to businesses and individuals to weather the worst of it.
Two years later, the geopolitical energy crisis, ongoing impact of Brexit and supply chain issues and rising inflation, means that we may have left the pandemic behind but we are now living through the highest living costs not experienced for thirty years.
Eight days from now, energy prices will rise by 54%. Two weeks today the increase in NICs will start hitting working people and employers. And of course, fuel prices continue to rise. Does the Chancellor deliver a plan to address these issues? Labour think not, who would have imposed a windfall tax on oil and gas producers and scrap the national insurance rise.
Summary of main tax changes
A summary of the main announcements made at the Spring Budget 2022:
Growth outlook
Lower growth outlook forecast but unemployment remains low and back at pre-pandemic levels. Inflation will continue to increase, likely to 8% by year-end; living costs will therefore continue to rise in the short term.
The biggest problem for the UK remains its poor productivity growth. The answers must include higher investment and more dynamic capital markets which Sunak is promising to address at the next Budget in the autumn.
A New Tax plan unveiled
Sunak says he is committed to lower taxes versus higher spending and has revealed his ‘principled and focused’ Tax plan, to help reform taxes in three ways:
No. 1 - Help families with the immediate cost of living crisis
The Chancellor will continue with the National Insurance rise from April, which will impact both workers and employers with an increase of 1.25%.
However, the National Insurance Contributions (NICs) threshold, currently at £9,568, at which point you start paying NICs will increase in line with the personal allowance to £12,570 from July. Sunak touts this as the largest tax cut in the last 10 years and tax cut that rewards work, for lower and middle income earners
Analysis: It would have been far better to raise income tax more broadly or scrap the NICs rise completely. But there are two strong arguments for going ahead with the NICs rise. The first is that this tax rise is at least moderately progressive. The second is that it recognises the reality that taxes must rise permanently, in response to demographic and social pressures. of an ageing population.
No. 2 - Foster high growth conditions in the UK
From April, the Employment Allowance (EA) will increase to £5,000 from £3,000 to help businesses with increasing payroll taxes as a result of the NICs tax hike.
Analysis: Sunak says himself the increase to NICs is a bad idea, hence the rise of EA from April. The increase in EA offset against the rise in the NICs threshold for workers will go some way to mitigate the NICs rise, , but it begs the question why not scrap the rise altogether.
No. 3 To share the proceeds of growth fairly across society
Sunak tells us that he wants us to keep more of what you earn and has therefore pledged to cut the basic rate of income tax from 20p to 19p from 2024.
The devolved governments have still to comment on whether they will follow suit.
Other tax changes announced
There will be a cut to fuel duty of by 5p per litre, in place to March 2023, and effective from 6pm March 23rd 2022.
For five years, Sunak wants to encourage homeowners to make their homes more energy efficient and has announced zero VAT on energy saving initiatives, like solar panels, heat pumps etc, which will save homeowners up to £300 year in energy bills.
There was no announcement of increasing the universal credit back to where it was during the pandemic but the annual increase to benefits will be 3.1%, lower than the current inflation rate of 6.2%,. Rather there will be increase funding to local authorities via the Household Support Fund. The government has defended the decision to remove the universal credit uplift, saying it plans to expand the eligibility of the Warm Homes Discount designed to cut energy bills.
No change to pensions
Experts have warned that those relying on the state pension could be hit particularly hard by rising costs. The state pension usually increases each year in line with whichever is the highest - inflation, average wage increases or 2.5%. This is known as the triple lock.
However, last September the government suspended the triple lock because of fears about how fast wages were increasing.
Since then, costs have spiralled. Inflation, which measures how the cost of living increases over time, now stands at6.2% and due to rise to 8% by the end of the year.
in conclusion
Overall, this Budget fell short in helping those in need in the short term to weather the current living crisis. The immediate effects of rising energy prices and the rise in national insurance rates, as well cost of food and fuel, means that many lower and middle earners will face a worrying 2022.
