With the cost of living crisis, most notably food, fuel and energy price rises, this was a much-anticipated ‘mini-budget’ announcement to see if the UK Government would introduce new policies that could help with personal budgets.
The Statement warned consumers to brace themselves for things getting more expensive faster this year, with inflation peaking at 9% at the end of the year.
The Office for National Statistics (ONS) said prices rose by 6.2% in the 12 months to February, the fastest for 30 years.
While the Ukraine conflict has undoubtedly put additional strain on the UK economy, consumers had already faced pressures from rising inflation, energy prices and the Chancellor’s tax rises.
Key announcements included:
- A 5p fuel duty cut
- An increase in the National Insurance threshold by £3,000 from July 2022.
- Reducing the basic income tax rate from 20p in the pound to 19p before the end of the current parliament in 2024.
- Cutting a 5% VAT rate for households installing solar panels, heat pumps, or insulation to zero.
- Doubling the household support fund to £1bn.
Fuel duty for petrol and diesel will be cut by 5p a litre across the UK, taking effect from 6pm on 23rd March 2022 and lasting for 12 months.
The average price of petrol has risen by more than 40p per litre since last year’s Spring Statement, and the announcement of a 5p a litre reduction in fuel duty is welcome.
However, with The RAC equating this to £3.30 off the cost of filling a typical 55-litre family car, the question is – is it enough?
Last September, the Government announced that employees would pay 1.25p more in the pound from their pay packet in National Insurance contributions.
In a significant move, Sunak has now said that the earnings threshold at which people start to pay National Insurance will increase.
Most workers start paying National Insurance contributions when their income hits £9,568. They pay 12% of earnings between £9,568 and £50,270, then 2% on any earnings above £50,270.
The Chancellor has said that National Insurance will be paid on income over £12,570 a year – the same level as income tax starts, meaning people will keep an extra £3,000 before they pay National Insurance (from July 2022).
Good news for those on the lowest pay, although one might question bringing this in during the same year of National Insurance rising 1.25% to pay for social care.
The Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000.
From April, Employment Allowance will increase to £5,000, giving a £1,000 boost to the amount available to eligible employers as a buffer for national insurance payments.
VAT cut for energy-saving materials
Homeowners will not pay VAT on solar panels, insulation and heat pumps for the next five years.
The cut to VAT covers energy-saving materials and installation of technologies including solar panels, heat pumps and roof insulation, which currently have a rate of 5%.
The Chancellor suggested that a household installing solar panels on their homes will see £1,000 in savings, and then £300 on energy bills annually.
Beyond the cut to VAT, there was nothing more to address soaring energy bills beyond what was unveiled last month (a £9 billion council tax rebate and loans package).
Household Support Fund
The Household Support Fund is a fixed amount of money made available to local authorities by the Department for Work and Pensions to support households in the most need with food, energy and water bills this winter.
It was launched as a £500million scheme in October 2021 to help people in the UK pay their way through winter amid the cost of living crisis.
This will now be £1billion.
If you need help or advice with how this budget affects your finances, please don’t hesitate to get in touch with our team.