Back in March, the chancellor delivered a spring statement against the backdrop of spiralling inflation, a stunted coronavirus recovery, and war in Ukraine.
Despite the cost of living crisis threatening to plunge millions of UK households into debt, an unpopular rise in National Insurance contributions (NICs) remained on the table. Rishi Sunak also had to juggle Russia’s Ukraine invasion and the UK’s continuing commitments to its climate change goals.
Find out what the chancellor announced, when the changes will come into force, and what they might mean for you and your loved ones.
Global uncertainty has affected markets and the UK’s economic outlook
Inflation reached 7% in March and has since reached 9.1% for May, according to the latest Office for National Statistics (ONS) figures. The Office for Budget Responsibility (OBR) has confirmed that inflation could continue to rise, with the Bank of England predicting inflation might not return to its 2% target until 2024.
War in Ukraine has further added to global uncertainty, causing the OBR to reduce its growth forecast for the next five years. It now anticipates GDP will rise by just 3.8%, down from its original 6% estimate.
So what will the changes mean for you? Here are five key takeaways.
1. There was good news for motorists
The chancellor began by announcing a 5p-a-litre cut in fuel duty. The move marked only the second time in 20 years that the duty has been cut.
While the cut led to concerns among environmental campaigners, it will reduce costs for the average motorist over the next 12 months. The reduction, when compared with uprating fuel duty in 2022/23, amounts to:
- £100 for the average car driver
- £200 for the average van driver
- £1,500 for the average haulier.
The cut came into force almost immediately and is due to stay in place until March 2023.
2. You will likely see your NICs rise… at least in the short term
It was left to the prime minister to announce a planned rise to NICs back in September 2021. The 1.25 percentage point rise in NICs will likely see your take-home pay decrease over the next couple of months.
The rise is payable by employers, employees, and – for the first time – workers over State Pension Age. From 2023, the rise will be renamed, showing on payslips as the “Health and Social Care Levy”.
The money raised by this measure, initially expected to be in the region of £12 billion a year, was designed to aid the NHS’s Covid recovery before being funnelled into social care. Both issues were said to be behind Sunak’s decision to press ahead with the controversial NICs rise.
3. Your take-home pay could rise again in July when new NICs thresholds come into force
The cost of living crisis could, according to the Resolution Foundation, see the average household £1,000 worse off this year. Acknowledging the difficulties families are facing, the chancellor balanced the Health and Social Care Levy with a change to NICs thresholds.
Sunak raised the National Insurance Primary Threshold and Lower Profits Limit, equalising NICs and Income Tax thresholds from July 2022.
The increase could see you pay less in NICs from July. It is expected that NICs will reduce for around 70% of NIC payers, even once the Health and Social Care Levy is factored in. That means it could benefit almost 30 million people.
4. Your business is likely to benefit from the government push to promote growth
The government believes that creating conditions for business growth is the best way to aid the UK’s economic recovery. With this in mind, the chancellor announced many measures which will benefit you as a business owner.
If your business plans to invest more than £200,000 in plant and machinery from January 2022, the decision to extend the increase to the annual investment allowance (AIA) – from £200,000 to £1,000,000 – to 31 March 2023 will come as good news.
The chancellor also announced a new temporary 50% relief in Business Rates for eligible retail, hospitality, and leisure businesses. Designed to help a sector that struggled during the pandemic, expect tax savings if you own a pub or retail outlet.
5. You could see your Income Tax bill decrease, but only from 2024
With changes to NICs affecting your take-home pay over the coming months and years, the chancellor was keen to highlight his tax-cutting credentials.
The largest potential impact on your tax bill could come into force in two years, just before the next General Election.
The chancellor has pledged to reduce the basic rate of Income Tax from 20% to 19%. If the change goes ahead, it will mark the first cut in the basic rate of Income Tax in 16 years, at a projected cost to the government of more than £5 billion a year.
Get in touch
If you are concerned about any of the changes announced in the spring budget or you would like to discuss any element of your long-term financial plans, please email email@example.com or call 01793 575553.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.