Chancellor Rishi Sunak delivered a Spring Statement aimed at putting more money in the pockets of taxpayers – although his noble aims may fall victim to the rising cost of living.
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His main message was a tax plan that he aims to fulfil before the end of this Parliament in April 2024.
However, on the eve of his speech, the Office for National Statistics undermined his tax breaks by announcing inflation was heading for the highest level in 40 years and could yet smash the record of the highest cost of the living rate recorded since record-keeping started 70 years ago.
Last month, inflation hit an annual rate of 6.2 per cent, and the ONS warns the figure could average 8.7 per cent later in the year.
Soaring inflation directly impacts the tax cuts by reducing the spending power of the pound in a taxpayer’s pocket.
Spring Statement 2022 changes
The Spring Statement covered Britain’s economic progress since last winter’s Budget.
The Chancellor revealed he was increasing the National Insurance Contribution (NIC) threshold by £3,000 – equivalent to a £330 NIC saving over 12 months for the average worker. However, Sunak has already slated a 1.25 per cent NIC Health and Social Care Levy from April that erodes the saving for all workers and wipes out the gain for anyone earning more than £36,000 a year.
From July, the NIC threshold – the amount someone can earn before paying NIC – rises to match the Income Tax Personal Allowance of £12,570.
To help family budgets, the Chancellor also announced a 5p a litre saving on the duty charged on a litre of fuel, worth £100 a year to car drivers and £200 a year to van drivers. The measure starts at 6 pm on the speech day (March 23, 2022).
Other measures included help for businesses with plans to boost business investment, innovation and growth.
Penny off income tax
Sunak saved his biggest revelation until last.
A promise to cut a penny off the basic income tax rate by April 2024. A penny sliced off income tax takes the rate down to 19p.
Delivering the statement, the Chancellor said: “This statement puts billions back into people’s pockets across the UK and delivers the biggest net cut to personal taxes in over a quarter of a century.
“Like our actions against Russia, I have been able to do this because of our strong economy and the difficult but responsible decisions I have had to make to rebuild our finances following the pandemic.
“Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.”
Read the full speech and Treasury Spring Statement 2022 folder
Spring Statement 2022 FAQ
What is the Spring Statement 2022?
The Chancellor of the Exchequer presents a review of Britain’s economic progress since the last Budget each Spring. The statement is made in the House of Commons.
How much tax am I likely to save from Spring Statement measures?
Government figures suggest the budget savings for an average taxpayer would be:
- £330 a year from the NIC threshold increase
- £100 a year for the average car driver
- £175 a year from the penny cut in basic rate tax
That adds up to £605 a year – but is likely to shrink for most people when the NIC Health and Social Care Levy and inflation are calculated.
How many taxpayers benefit from the cuts?
No one earning from just under £36,000 a year benefits from the NIC threshold increase. Nevertheless, more than 30 million taxpayers will see some extra cash in their pockets.
What do the changes mean for the self-employed?
The self-employed still pay NIC on their earnings and, after levelling up this year, will see the thresholds equal that of the employed workforce at £12,570 a year.
When is the next Budget?
Expect the next Budget in the autumn – typically towards the end of November.
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