Exactly two years since the first lockdown was announced, all eyes were on The Chancellor, Rishi Sunak, as he took to the despatch box in the House of Commons to deliver his Spring Statement 2022.
Scroll down for reactions from Lucy Orrow, Craig Weavers, Sean Wiegand, Richard Thomson and Nick Forsyth:
Rishi Sunak, The Chancellor, has set out his Tax Plan which aims to demonstrate his intentions for the rest of this Government. It includes today’s announcements which target workers with higher national insurance allowances to offset the increase rates for the health and welfare levy and the immediate 5p per litre reduction in the fuel levy. It also sets out what his future plans are, including a review of capital expenditure for businesses to bring us closer to the reliefs available in other countries and training allowances.
In a Spring Statement we wouldn’t normally expect so many announcements, albeit just a few, but having had a mute Budget in November on taxes, it has more than made up for it, with the promise of more to come.
With future vision, the reduction in the income tax basic rate to 19% will presumably be a crowd pleaser timed to land before the next Election.
Lucy Orrow – Senior Tax Manager
The Chancellor’s announcement in yesterday’s spring statement will come as some welcome relief to household incomes with the increased National Insurance threshold from 6 July 2022 to counteract the 1.25% increase coming in from 6 April 2022.
The statement also included an additional £1,000 in the Employment Allowance threshold. There will be employers with larger workforces who will still face increased wage costs due to the additional 1.25% increase and some who may end up losing the Employment Allowance by the increase taking them over the threshold.
The increased National Insurance along with energy and fuel prices, seeing unprecedented increases in recent times, will have a major impact on businesses and the economy. This all comes before the proposed Corporation Tax rise to 25% coming in from April 2023.
Craig Weavers – Partner
The 2022 Spring Statement contained a few announcements which will help household income and expenditure levels compared to making no changes. However in my view, families will still be worse off once you take into account the changes already announced and rapid increases in cost of living.
- The reduction of 5p per litre whilst welcome is after seeing the cost of Diesel increase by about 30p per litre over the last month. If we consider the impact of VAT, the Treasury will receive an extra 5p per litre in VAT from the general public and so a 5p cut in fuel duty is not much of a giveaway.
- Rishi Sunak announced an increase in the employees National Insurance threshold to £12,570 but not until July 2022. We should remember though that the new Social Care Levy of 1.25% applies from April 2022. Therefore if you earn say £40,000 per annum you will pay National Insurance of £304 in the month of March 2022, £333 in April, May and June 2022 and then £303 per month from July 2022 onwards which is virtually back where we started.
- It is good to read that VAT has been reduced to 0% from 5% on energy efficient goods such as solar panels and heat pumps but it only really helps if you have the money to invest in these systems in the first place.
Finally the public will like the announcement to cut basic rate income tax by 1% to 19% in April 2024 but we need to get there first. In my view this is just gearing up so that in a general election year the government can say “we now have the lowest basic rate of income tax we have had for decades”.
It is businesses though that will really start to feel the pinch with pressure to increase wages due to rises in inflation. Automatic increases will also apply at 9.8% if they are paying national minimum wage to a 21-22 year old from April 2022. Employers are not getting the same increase in National Insurance thresholds to help and instead are only receiving an increase in the employment allowance from £4,000 to £5,000. Whilst this is good to receive, the increase in wages paid to employees and therefore National Insurance contributions may be enough to remove the Employment Allowance altogether for the following tax year and so making them worse off in April 2023.
Wage increases combined with businesses own overhead increases (especially energy) will mean they have no option but to increase their prices to ensure continued viability which has knock on effects to their customers and so on and so on, contributing to increased inflation.
On a positive note, the super deduction is still available for capital allowance claims until April 2023 and so businesses should bear this in mind over the next 12 months when planning capital expenditure.
Sean Wiegand – Partner
Is that it?’ shouted one Labour MP during Sunak’s speech.
With inflation significantly increasing, the announcements in the Chancellor’s speech may not be significant enough to mitigate against the reduction in real income for the average household.
The reduction to fuel duty is a welcome announcement, albeit even after the reduction, it is reported the government is still collecting increased amounts of VAT on fuel sales, due to the continuing higher prices.
The previously announced increase to National Insurance from April 2022 will increase the taxation burden for many.
In his speech, the Chancellor’s announcement of an increase to National Insurance thresholds will help compensate the lower earners for the National Insurance increases. For higher earners, they will still be worse off.
It is also noted that the increase to the National Insurance threshold takes place in July, so will not help for the first three months of the new tax year. The freezing of Income Tax bands will push more earners into higher taxation bands as their salaries increase.
For employers, National insurance costs will still potentially rise, although the increase in the Employment Allowance to £5,000 will potentially mitigate against this increase for many businesses.
Having limited choices, the Chancellor set out future changes with the promise of a future Income Tax reduction from the 20% to 19% in 2024. Many will question if an overall taxation reduction will occur by 2024 or if the announced reductions will be compensated for by taxation and National Insurance increases elsewhere.
Despite his opponents’ calls, the chancellor decided against scrapping the planned rise to National Insurance or using windfall taxes, focused on specific industries, to increase his funding.
Richard Thomson – Senior Manager
Rishi Sunak came under heavy scrutiny on BBC Breakfast this morning following yesterday’s Spring Statement, but in many ways – what can he do? Probably not indicate that he is going to cut taxes in the future as a method of papering over the cracks, for he doesn’t really know if he can do this as the last 2 years have shown, for none of us know what’s round the corner.
We currently have inflation producing rising prices, oil in a volatile state due to the war in Ukraine and electricity and gas prices rising to unprecedented heights. Rishi believes that he fixed the utility issue with an earlier announcement, but most of us think it didn’t touch the sides and whilst the fuel duty decrease of 5p is welcomed, is it going to be enough to help many through when one of the largest growing sectors in the economy seems to be the Foodbank?
For businesses, the review on capital allowances may prove to be a saviour in keeping businesses investing in trading assets and the additional £1,000 on the employment allowance will assist the smallest businesses in dealing with the additional national insurance costs from April.
I have read that the extra VAT on higher fuel prices more than compensates for the decrease in the fuel duty and so this isn’t considered to be a decrease to the exchequers purse, but the National Insurance changes will be and I wonder what spending this prohibits. In the past, the health service and defence might have borne the brunt but with what we have seen and currently see, ignoring these has been to our cost.
We are, of course, all grateful for the additional money that the national insurance changes will provide in these testing times as we certainly need it, but it seems to me that Rishi is seen – by both colleagues and the public – as a Chancellor who can produce money from his magic hat before he has repaid what he produced for the previous trick. I wonder how long this can go on?
Nick Forsyth – Managing Partner
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.