Chancellor of the Exchequer Rishi Sunak has unveiled a number of measures to mitigate the rising prices of fuel, energy and food in the UK. The announcement was made during the Spring statement 2022, where Mr Sunak noted that the measures were a way to build a ‘strong, more secure economy for the United Kingdom.’
The measures that were announced in the updated budget for 2022 look to tackle the severe impact of inflation which has resulted in financial struggles across the nation. With the cost of living crisis continuing to grow, the worry is that these measures simply aren’t enough.
The Spring statement for budget 2022 is a chance for the UK Government to reassess and make adjustments to the budget in the face of a financially calamitous year. It’s also a chance to inform the UK public about the current financial outlook for the UK and what steps are being taken to mitigate the looming cost of living crisis.
Mr Sunak has been hesitant to announce any major tax cuts, stating that, ‘cutting tax is not easy, it requires hard work and the willingness. This government has been prepared to make those difficult choices.’
Below is a summary of the announced plans by the UK Government:
Cutting fuel duty
Although the global rise of fuel prices seems to have plateaued, in the UK at least the price of fuel is reaching record highs. To combat this, Mr Sunak announced a drop in the cost of fuel duty by 5 pence per litre. This is notable for being the second time in 20 years that fuel duty has been cut by the government, but this is the largest drop in price ever enacted.
The fuel duty cut is expected to be worth an excess of £5 billion and will run for 12 months, until March 2023.
0% VAT for green initiatives
Another prominent talking point has been the push for cleaner energy, which has been addressed in the Spring statement by getting rid of VAT on any form of energy-efficient initiatives, such as solar panels, heat pumps or insulation. This will work in tandem with a reversal of the EU’s plans to remove wind and water turbines from the plan. It’s worth noting that this plan won’t be available in Northern Ireland immediately as a result of the Northern Ireland Protocol.
Support fund for households
The Household support fund has been given a boon by Mr Suank during the Spring statement. New measures will mean that the support fund essentially doubles to £1 billion thanks to an additional £500 million worth of funds being made available. These funds will go towards local authorities from April 2022.
National insurance contributions threshold raised
The Chancellor also noted that the threshold for National Insurance contributions will be raised by £3,000. This is expected to take effect from July 2022 and means individuals can earn up to £12,750 per year without having to pay income tax or National Insurance.
Employment allowance increases
The Employment Allowance for businesses has been increased by £5,000. These changes are expected to take effect from April.
Cuts to income tax
Changes to income tax mean that the basic rate has been lowered from 20p to 19p on the pound. This works out to around £330 per year on average saved in taxes for employees.
Too little, too late?
With a bleak economic outlook globally and the ramifications of the Ukraine conflict still unknown, it’s clear that the UK’s economy will be strained. This points to a significant drop in living standards across the UK due to rising inflation and taxes.
Interestingly, the announcement of slashing a penny off the income tax won’t actually take full effect until two years down the line. It certainly removes the element of surprise, but it also means that the UK Government is tied to this commitment even though it’s years away.
The growing concern is that these measures are more to do with instilling the notion that Mr Sunak is a renowned cutter of tax, even if we aren’t feeling any of the benefits as of yet. In fact, Mr Sunak’s time as chancellor has seen taxes increase dramatically instead of reducing them.
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