The 2022 Spring Statement was delivered earlier today by the Chancellor, Rishi Sunak, against the backdrop of a cost of living crisis. Inflation hit a new 30 year high of 6.2% in February with the largest contributors to this figure being increased energy bills and rising fuel costs. Inflation is also set to rise further in the coming months due in part to the impact of the war in Ukraine and the rise in the energy cap, whilst there remains supply chain constraints following the coronavirus pandemic. All of which is further compounded by the planned 1.25% increase to National Insurance coupled with various tax allowance freezes. The Chancellor was therefore under pressure to relieve the burden on households who face a worsening ‘income squeeze’.
As was widely anticipated fuel duty was cut by 5p per litre and will come into effect immediately and will remain in place until March 2023.
The only change announced to VAT was in relation to energy saving materials such as solar panels and heat pumps, where homeowners will now pay 0% as opposed to 5% for the next 5 years.
The Chancellor had been urged prior to his statement to delay the planned increase of 1.25% in National Insurance due to come into effect from 6th April 2022. Whilst he hasn’t changed his mind on this increase, he has stated that the National Insurance threshold will increase by £3,000 in order to be brought in line with the income tax personal allowance of £12,570 from July 2022. People will therefore be able to earn £12,570 per annum and pay no income tax or National Insurance. This represents a tax giveaway of £6bn for 30m people, with a typical employee benefiting to the tune of £330 per annum, meaning that this is the largest single personal tax cut in a decade.
The Chancellor stated that before the end of this parliament in 2024, he plans to cut the basic rate of income tax from 20% to 19%, although there are no immediate reductions applicable. This is the first cut to the basic rate of income tax in 16 years.
Everyone has an income tax personal allowance. Currently, it is £12,570, meaning you can earn that much during the year before you start paying tax, and as previously announced it will remain frozen at this level until April 2026. Similarly, the higher rate tax threshold which presently stands at £50,270, will also remain frozen until 2026.
For information, set out below are the current tax rates and thresholds for England, Wales and Northern Ireland: