Just over a year after his last budget on March 3 2021, Rishi Sunak has announced the Spring 2022 budget, including plans for tax changes, financial support and a general update on the state of the economy.
The chancellor intends to “accelerate growth” for the UK while the Institute for Fiscal Studies (IFS) claims that the Chancellor seeks to stabilise the public finances and reduce the national debt.
By, “Delivering greater economic security for our people, accelerating growth and productivity, and making sure the proceeds of that growth are shared fairly.”
But is that possible with the measures announced by Mr Sunak?
How will the Chancellor shield households from the cost of living?
In February a package of support measures was announced to shield households from the cost of living. Offers for support include a £150 council tax rebate for homes in bands A to D and a £200 credit on energy bills (which has to be repaid over the next five years).
These measures simply aren’t enough for the thousands of households in financial difficulty. Many are still repaying personal and business loans that were offered to them during the pandemic while others struggle to stretch their income to meet the ever-rising cost of living.
The Resolution Foundation has estimated that real household incomes will fall by four% in the coming year – a squeeze not seen since the recessions during the mid-1970s and 1980s.
Key budget take-aways
Here’s how Rishi Sunak plans to help the UK nation during an unprecedented time of supply shortages, gas price increases and stagnant wage growth.
A 5p fuel duty cut
Continuing the 12.5% VAT discount for the hospitality industry
Raising National Insurance thresholds by £3,000
Cut fuel duty by 5p
50 MPs have declared in writing that 5p is the very minimum that they expect to be deducted from fuel duty in order for any effect to be felt by the average driver.
According to the Department of Transport, the average commuter drives 138.5 miles a week. In March 2022, the average cost of a litre of fuel is 165.37p a litre - that’s an increase of more than 55% in the last two years.
As a result, the average tank of fuel now costs almost £90, up by about £33 compared to May 2020.
Cutting fuel duty by 5p would only save £2 on filling up a tank. That’s significantly less than our neighbours including Ireland which has cut 17p on petrol, the Netherlands (14p), France (13p) and Sweden (10p).
The 5p cut will remain in place for 12 months, lasting until March next year.
Extend the VAT discount for the hospitality industry
The 12.5% VAT discount for the hospitality industry is to be extended rather than reverting to 20% in April, 2022. Experts have warned that going back to 20% VAT could contribute to a 10% rise in the cost of eating out.
Wetherspoons boss Tim Martin has used the pub chain's interim results to issue a number of warnings to the Government over future Covid restrictions and tax policy.
Mr Martin has argued that the difference in tax paid between pubs, restaurants and supermarkets must be more fair, as currently, supermarkets pay around 2pence in VAT for beer sales in comparison with pubs which pay 20pence.
Commenting on the widening of the price gap, Mr Martin said, "This has enabled supermarkets to subsidise the price of alcoholic drinks to the detriment of pubs and restaurants.
Will the National Insurance hike be delayed?
Many had hoped that the National Insurance increase scheduled for April the 6th, 2022 would be delayed or scrapped altogether, however, this has not been the case.
National Insurance is due to increase by 1.25% for both employers and employees.
Labour have urged the chancellor to wipe out the National Insurance rise for lower-paid workers by raising the threshold at which they start to pay the tax. It is currently £9,600, rising to £9,900 in April. They argue that the new threshold should be £10, 700, so that anyone earning less than £20,000 would benefit from a £100 tax saving.
However, the Centre for Policy Studies, a centre-Right think tank, has suggested going further. They want to raise the threshold to £11,284 to prevent any workers earning less than £27,500, from experiencing a tax rise of £182.21.
There is some good news as the Chancellor announced during his budget statement that he is raising National Insurance thresholds by £3,000. From July people will not pay a "single penny of income tax or National Insurance" on the first £12,570 they earn.”
Inflation continues to soar
Inflation is already up 6.2% in the 12 months to February - the fastest for 30 years. While that’s lower than the US and broadly in line with the Euro area, it doesn’t look like that’s due to stop.
The Bank of England is projecting inflation to rise to eight per cent this summer, meaning prices will outstrip wage growth.
However, the 5p fuel duty cut could contribute to a reduction in inflation. Higher fuel prices contribute to inflation directly by increasing the cost for businesses to transport goods.
If the chancellor lowers fuel prices and businesses pass on these savings to customers, that could mean smaller increases in the price of food and other items.
Did the budget include anything about spending on Ukraine?
Rishi Sunak commented that, “We have a moral responsibility to support Ukraine and impose severe costs on Putin’s regime.”
During the budget statement, the Chancellor provided details on how the UK government and Treasury are helping with the crisis, stating that they’re providing;
£400 million in economic and humanitarian aid
Half a billion dollars in multilateral financial guarantees
Launching new homes for Ukraine
Imposing sanctions of unprecedented
Frozen assets on Russian banks
Targeted Russian central bank (forced to double interest rates to 20%)
The Chancellor added, “Mr Speaker, the actions we have taken are not cost free for us at home. We came into this crisis with our economy growing faster than expected with the UK having the highest growth rate in G7 last year but the OBR have said specifically that there is unusually high uncertainty on the outlook.”
Making sense of how the budget affects you
The increasing cost of living is something that many have on their minds and we’ve been contacted by lots of homeowners and landlords seeking to remortgage to a cheaper deal. For those who are eligible to switch, it could make sense, especially if forecasts for further interest rate rises are correct.
Interest rates increased three times between December and March, at unprecedented levels, leaving those old enough to remember with an eerie feeling that the 1970’s soar will return.
“It’s not going to be easy” Rishi Sunak said, as he addressed the commons.
“I wish government could solve absolutely every problem, that I could fully protect people against all the challenges that lie ahead. I can’t do that."
Many going without fuel, food and heating might question if Sunak really does wish he could help.
You can read the opening of the Chancellor's statement below. We’d love to know your thoughts, so feel free to comment via social media or message our team here.
The 2022 budget statement
“As I stand here, men, women and children are sitting in basements seeking protection. The sorrow we feel for their suffering is only matched by the gratitude in the security in which we live.
What underpins that security is the strength of our economy. It gives us the ability to fund the armed forces we need to maintain our liberty. The resources we need to support our allies. The power to impose sanctions which cause severe economic cost. And the flexibility to support businesses and individuals through crisis as they emerge.
But Mr Speaker, we should be in no doubt that behind Putins’ invasion is a dangerous calculation that democracies are divided, politically weak, economically insecure. Incapable of making tough long term decisions to strengthen our economies.
This calculation is mistaken.
What the authoritarian mind perceives as division, we know, are the passionate disagreements at the heart of our living breathing democracy.
What they see as chaos we know is the freedom to be dynamic and innovative.
When I talk about security, I mean responding to the war in Ukraine. But I also mean the security of a faster growing economy, the security of more resilient public finances and security for working families as we help with the cost of living.”