Spring Statement 2022: A Guide From Government

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 On 23 March 2022, the Chancellor gave his Spring Statem


ent to Parliament. The Office for Budget Responsibility also published new forecasts for the economy and public finances.

 

The Spring Statement is supposed to be a fairly light touch affair in which the Chancellor only makes significant tax or spending announcements where “economic circumstances require it”. However, the Chancellor did make announcements, including on personal taxes and fuel duty.

 

The SpringStatement was delivered in the context of higher inflation. Rising prices are squeezing household budgets, as energy, road fuel, food shopping and other items are becoming more expensive. Russia’s invasion of Ukraine is likely to exacerbate the issue, forcing UK inflation higher for longer. The Office for Budget Responsibility (OBR) now expect inflation to peak at close to 8.7% in Q4 2022, 4.3%-points higher and two quarters later than the peak in its October 2021 forecast.

Tax and spending announcements

Changes to taxation and expenditure include

  • A rise in the amount of income at which individuals begin to pay National Insurance contributions (NICs) from PS9,880 to PS12,570 by July 2022. The rise will align with the NICs levels (the primary threshold as well as the lower profit limit) with the date when people begin to pay taxes on income earnings (the personal allowance for income tax). The thresholds for NICs and the personal allowances will remain unchanged until April 2026. The thresholds would be raised by inflation every year.
  • Reduce the Class 2 NICs by a factor of zero, for those who are self-employed who earn that are between the small profit limit (currently PS6,515) and the lower profit limitation (currently PS9,568) starting in April 2022. Class 2 NICs will be paid out at a fixed amount of PS3.05 when you earn self-employed earnings of more than PS6,515.
  • A temporary reduction by 5p per litre tax on petrol beginning at 6.30 pm the same day as the announcement.
  • In April 2024, the base amount of the income tax was from 20% to 19%.
  • A rise in the allowance for employment (which lets employers reduce their NIC payments to a certain sum) between PS4,000 and PS5,000 will be effective beginning in April.
  • Reduce the rate for VAT on energy-saving products (such as solar panels) from 5% to 0% in five years beginning April 2022. Water turbines and wind turbines are added as energy-saving materials.
  • PS500 million to the Household Support Fund in 2022/23. The allocation is extended to the household support fund which was first given an allotment of PS500 million from 6 October 2021 until 30 March 2022. The funds are distributed by councils across England.
  • HMRC, as well as DWP, received additional funds to collect taxes as well as to prevent and identify errors and fraud, and pay debts.

OBR forecasts: the economy

Inflation

The recent rapid rise in prices has led to inflation hitting a record maximum of 6.2 percent in February 2022. This figure is according to CPI. CPI measures prices for consumers. The ongoing conflict in Ukraine has resulted in higher inflationary pressures within the world economy as Russia along with Ukraine are major producers of a variety of products. In the case of the UK, the OBR states that the majority of the effects of conflicts will manifest in prices for energy.

The OBR currently anticipates CPI inflation to reach 8.7% in Q4 2022 and to rise above 7 % for each quarter starting in Q2 2022 through Q1 2023. This is more than the record high of 4.4%, which was projected at the end of October 2021.

Incomes of households

The OBR believes that inflation will continue to rise and be higher than earnings growth over the coming year. Additionally, despite the policy announcements made by the Spring Statement, there will be a rise in taxes throughout the economy beginning in April. In the end, the OBR estimates that household incomes after-tax adjusted to inflation to drop in the fiscal year 2022/23, by the highest amount (-2.2%) from the time records started to be recorded in the mid-1950s.

In the same way according to this same measure, the OBR is now predicting that household post-tax incomes adjusted to inflation to fall in the second quarter of 2022. The OBR is not predicting them to rise to the same levels from the beginning of 2022 up to Q3 2024.

The measures that have been that the Chancellor has announced since October, such as the PS9 billion support package for energy bills along with the Spring Statement, are expected to be implemented by the OBR to "offset a third of the overall fall in living standards" that could have occurred over the next twelve months.

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