Following the budget statement earlier this week, there are a few points that are worth highlighting.
As financial planners the most notable point is that the top thresholds for income tax, capital gains tax and inheritance tax as well as other thresholds and limits, remain unchanged, which means more people will suffer this as inflation, at 7.1% takes effect. This increases the need for financial planning.
- Go and fill up your petrol tank… there’s a 5p cut from the 23/03/2022…. it will of course take a little while for this to flow through to all fuelling stations but worth having
- A cut of 1 penny in basic rate income tax before the next UK election in 2024 (from 20p to 19p) – Will this come to pass?
- Rishi Sunak has raised the national insurance threshold by £3,000 – but this is only to soften blow from his previously planned tax increases… so tax will still rise but just by less than initially planned in by the Chancellor in previous budgets.
The main points in the Spring Budget Statement from the Chancellor, Rishi Sunak
- Cut the basic rate of income tax from 20p to 19p in the pound before the next election. This will would cost £5bn and benefit 30m people.
- Fuel duty will be cut by 5p from 57.95p per litre following the surge in petrol prices with the reduction lasting for 12 months.
- The National Insurance threshold will increase by £3,000 to cushion the blow of his planned tax hike in April. It will mean workers can earn £12,570 without paying the tax, a £6bn tax cut worth over £330 per year for employees.
- The household support fund was doubled to £1bn with local authorities delivering the extra £500m from April.
- The Chancellor has already announced a £9bn package to help families with their energy bills. Around 80pc of households will receive a £150 council tax rebate while Britons will also get £200 off their energy bills in October. However, the latter will be paid back over time.
- The Chancellor pledged to cut taxes on business investment when the “Super Deduction” ends next year while research and development tax credits will be reformed.
- The Employment Allowance will increase by £1,000 to £5,000, making it cheaper for firms to hire workers.
- Homeowners installing energy saving materials, such as heat pumps and solar panels, will not pay 5pc VAT for the next 5 years.
- The Office for Budget Responsibility has delivered a mixed set of forecasts for the Chancellor. They downgraded the growth forecasts for the UK economy as soaring living costs and the Ukraine crisis dampen the outlook.
- Growth is set to slow to 3.8pc in 2022 and 1.8pc next year, sharply down from previous predictions of 6pc and 2.1pc, respectively.
- Inflation a key factor in this forecast is expected to average 7.4pc this year, peaking at over 8%, much higher than previous estimates.
- Unemployment will be lower and has already fallen to 3.9pc.
- Government borrowing for 2021/22 was better than expected at £127bn, compared to the watchdog’s previous prediction of £183bn. As a result, the deficit forecast for next year will be lifted. Borrowing is expected to fall to £99bn in 2022/23 but this is higher than the £83bn predicted at October’s Budget.
- Borrowing as a percentage of GDP will be 5.4pc this year and 3.9pc next year with the Chancellor still on course to hit his fiscal rules. Debt interest costs will be the highest on record at £83bn in 2022/23.
- Underlying debt as a share of GDP will fall from 83.5pc in 2022/23 to 79.8pc in 2026/27.
- Rishi Sunak said the government has committed around £400m in urgent economic and humanitarian support to Ukraine since the invasion.
- This includes a £220m package of aid, £76m budgetary support grant, and £100m package to boost the Ukrainian economy and reduce its reliance on gas imports.
- Pensions got virtually no mentions in the Spring Statement document or the tax plan, which wasn’t a huge surprise given the nature of the statement. However, that doesn’t mean that there aren’t any implications when it comes to financial planning both in the short and long term.
UK State Pension
- In his Spring Statement (23 March) Sunak made no improvement on the 3.1% increase in the state pension from next month.
- The government has said it will reinstate the triple lock on the state pension for the rest of this parliament (It temporarily suspended the triple lock last year due to the distortive effects furlough would have had on it).
- However, this means that pensioners will experience a below inflation increase of 3.1% next month but an estimated rise of 8% or more in April 2023.
If you have any questions about this or any other aspect of The Chancellors 2022 Spring Statement , please get in touch on 0118 334 3500, or [email protected]
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