The Spring Statement is one of two major statements given by HM Treasury in a financial year. The other is the Autumn Budget.
The Spring Statement was delivered in the context of higher inflation. The Office for Budget Responsibility (OBR) expects inflation to peak at around 8.7% towards the end of the year due to rising prices in energy, fuel, food, the impact of Brexit and the war in Ukraine.
The Chancellor announced that his intention is to help ordinary families through the current cost of living crisis, whilst also creating conditions for economic growth.
Five key announcements were made:
With rising prices at the pumps, many had urged the Chancellor to address this in his speech and he did.
The Chancellor announced that fuel duty would be cut by 5% to 52.95p per litre and would come into effect at 6pm on 23rd March. He further added that it would be in place for a full 12 months.
On the surface, this announcement in the Spring Statement seemed shiny and positive, yet once the numbers were crunched, it lost its sheen.
Taking into account the already rising cost of fuel duty, the RAC worked out that it would take £3.30 off the cost of filling up an average family car. Also bear in mind that this would only effect those who can afford to run a car in the first place.
We are in the midst of a cost of living crisis and the government was urged to scrap a planned rise in National Insurance of 1.25% however this was not forthcoming.
Instead, the Chancellor raised the National Insurance threshold by £3000 in the Spring Statement. From July 2022, people will not have to start paying National Insurance until their earnings reach £12,570. Technically this is a tax cut for employees worth over £300 per year.
The Chancellor announced that the basic rate of income tax will be cut from 20% to 19% and that this is the first change to income tax in the last 16 years. Sounds positive? Maybe, however it is not being brought into place until 2024 so cannot be viewed as a measure to help families now.
The Household support fund will be doubled under the Spring Statement to £1 billion with £500 million of funding. This provides small cash grants to vulnerable households in England to help pay for food, clothing and utilities. Local authorities will receive this money from April 2022.
Sounds great, however the Joseph Rowntree Foundation has described this injection of cash as a “drop in the ocean” and warned that the lack of state benefit support would lead to destitution.
Oxfam has criticised the move, especially because the Chancellor failed to announce measures to change state benefits or pensions. There was no Universal Credit taper rate adjustment nor a reintroduction of the £20 uplift that was brought in during the pandemic, which would have helped. They believe that these lack of measures will risk dragging an extra 400,000 people into poverty and the Institute of Fiscal Studies has warned that those on the lowest incomes will face a big cut in living standards as inflation rises further.
The employment allowance will increase, which allows employers to reduce their National Insurance contributions up to £5000 (from £4000 previously).
The Chancellor was criticised for not going far enough in addressing the upcoming energy price hikes. In February, he had announced a £9 billion package to offset about half the energy bill rises facing households from the start of April.
However the Institute for Fiscal Studies has calculated that a typical worker will be losing out by £300 given the latest energy rises.
To help combat higher prices, the Chancellor announced that for the next five years homeowners who pay to have insulated materials installed such as solar panels and heat pumps will no longer pay five percent VAT and will instead shell out nothing. Wind turbines and water turbines will also be included in this VAT cut.
Great news? Perhaps for those who are already in a position to afford to get those materials installed. A family installing these measures will see tax savings worth over £1000. It will be of little use to the households who do not have that disposable income to spend on these measures.
On the surface, the Chancellor’s Spring Statement seemed to be quite positive. However, once each shiny item is delved into, they do lose their sheen.
It’s a Spring Statement that, given the economic situation at present and the depressing outlook over the next 6-12 months, did not go far enough to help the most vulnerable households.
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