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Spring Statement 2022 - how it might affect your finances
Inflation was in the headlines prior to Chancellor Rishi Sunak’s Spring Statement as CPI inflation reached 6.2% in the 12 months to February and it was announced that the Office for Budget Responsibility (OBR) had predicted inflation will average 7.4% this year. The key here is the word ‘average’ so doesn’t indicate what the peak might be. The cost-of-living crisis, which is resulting from inflation at this level, put Mr Sunak under pressure to scrap the 1.25% Health and Social Care Levy which is to be added to National Insurance contributions from April, but he decided to press ahead with this as previously planned.
However, there was some good news as it was announced the threshold for paying National Insurance will be increased by £3,000 in July, meaning individuals will be able to earn £12,570 per annum without paying any income tax or national insurance contributions. The other big announcement was that basic rate income tax will reduce from 20% to 19% in 2024. Motorists will also be happy with a fuel duty cut of 5 pence per litre from 6pm this evening which should help to offset recent price rises at the pumps.
Additionally, it was announced that VAT will be scrapped on energy efficiency measures such as solar panels, heat pumps and insulation installed in homes across Britain over the next five years. This will be welcomed by individuals considering purchases of this nature, both to help the environment and to become less reliant on fossil fuels following recent energy price increases (which are heavily contributing to the levels of inflation we are seeing).
In summary, some might say pressing ahead with a 1.25% National Insurance increase whilst promising a 1% reduction in income tax in two years’ time is giving with one hand whilst taking with the other and that this moves more of the tax burden onto workers who pay income tax and National Insurance and away from pensioners who typically only pay income tax.
From a financial planning perspective, higher inflation, volatile markets, and potential changes in tax rates make planning ahead as important as ever and if you would like to discuss the Spring Statement, please get in touch.
If you’re concerned about how the announcements may affect your finances, why not get in touch and see if one of our financial advisers can help. We’re offering those with £100,000 or more in savings, investments and pensions a free financial review worth £500.
Please note:This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. Investment returns are not guaranteed, and you may get back less than you originally invested.