For a Spring Statement which is not intended to include any significant tax announcements (these are normally saved for the Autumn Budget), it certainly over delivered with the grand unveiling of the Government’s Tax Plan to reduce and reform taxes for the future.
The OBR forecasts for growth have been downgraded from the Autumn Budget prediction of 6.5% in 2022 to 3.8%, followed by 1.8% in 2023 and then 2.1% in 2024. These forecasts come heavily caveated with unusually high uncertainty for the outlook of the UK economy given the effect of the global markets following the Russian invasion of Ukraine.
With the ongoing cost of living crisis and inflation forecast to average 7.4% for the year, the Chancellor announced some immediate measures to help struggling families. This included a cut in fuel duty by 5p per litre with effect from 6.00pm of the day of his statement (23 March). The cut will apply for 12 months and represents an average saving of £100 for car owners and £200 for van drivers.
To support vulnerable households, it was announced that the £500 million household support fund would be doubled to £1 billion from April and that this would be passed on to local authorities to distribute as appropriate.
The final immediate measure announced was that VAT on the installation of energy saving materials for households will be zero rated for the next five years. The current rate of VAT for solar panels, heat pumps and insulation is 5%, however, this will be 0% from April 2022 and the definition of energy saving materials will also be extended to include wind and water turbines. Savings for a family installing solar panels on their home will be in the region of £1,000 on installation costs and £300 per year in energy bills.
The Chancellor confirmed that the 1.25% health and social care levy would be introduced as planned, however, to compensate for this he announced that the national insurance primary and lower profits thresholds would be aligned with the personal allowance from July 2022. This represents a £2,690 increase to £12,570. This was a welcome announcement for lower earners who will actually have their taxes cut by more than will be paid through the new levy as a result. As an added bonus for employers, the employment allowance will be increased from £4,000 to £5,000 from April 2022.
Further announcements included future reform and cuts to taxes on business investment. This will be achieved by reforming the R&D expenditure credit scheme, as well as cutting taxes on capital expenditure following the end of the 130% super deduction in March 2023. Further details on both of these measures will be released later in the year and are expected to take effect from April 2023.
Sunak saved the best for last, however, ending his speech on a high confirming that by 2024 inflation would be back under control, debt will be decreasing, and the economy will be growing. His rabbit out of the hat was to announce that the basic rate of income tax would be cut from 20% to 19% in 2024, the first cut to this banding in 16 years.
The Chancellor has long stated that his aim is to decrease taxes before the end of the parliamentary term and, whilst this is welcome news, it does not provide immediate relief for families that need help now. For now, Sunak continues to gamble on the hope that the economy will bounce back as expected without any further unprecedented global events thwarting his plans.