Rishi Sunak’s 2022 Spring Statement was more critical than most statements in recent times. Fuel prices have rocketed to all-time highs, the energy price cap hike will see household gas bills rise by over 50% and the government are steaming ahead with plans to raise national insurance by 1.25%. This has led to the Office for Budget Responsibility (OBR) predicting that 2022 will see the fastest decline in living standards for UK residents since record began. In response, Rishi Sunak said he stood with the poorest families as he announced a series of support packages in his Spring statement. Wider reactions to Sunak’s statement were luke-warm at best. This article will explore the key points from the announcement and how the plans will affect households in practice.
One of the main points of criticism of the Tory government has been its plan to introduce a 1.25% increase in National Insurance to pay for health and social care. With the cocktail of inflationary pressures, many argued the increase should be postponed or scrapped. Instead, the government announced in the Spring Statement they would increase the income threshold for National Insurance, raising the point at which people start paying. The threshold will rise from £9,570 to £12,570 in July. The rise in National Insurance rates however, will still go ahead.
Mr Sunak said the threshold increase would save employees over £330 a year in tax. But does this offset the rise of National Insurance rates? For most workers, yes. In real terms, employees earning up to £34,370 will see a cut in their National Insurance payments. Furthermore, 2.2 million of the lowest earners will no longer pay National Insurance. Given the median full-time UK salary is around £31,000, this is undoubtedly a positive move that will help the majority of people.
Sunak announced that in 2024, the basic rate of income tax will be cut from 20% to 19%. Last year however, the chancellor announced the income tax and personal allowance thresholds will be frozen for four years. Typically, the government raises these thresholds annually to meet inflation, ensuring that workers do not enter higher tax brackets when they receive pay rises at the rate of inflation. With inflation expected to rise by 8% by the end of the year and workers inevitably seeking pay rises, more people will be paying tax or paying more tax. The OBR predicts that 2.5 million more people would be paying tax by 2024, than if tax thresholds had not been frozen. Furthermore, 1.8 million will be brought into paying the higher rate of tax of 40%.
The cut in income tax from 20% to 19% in 2024 appears solely to be a political move. With an election coming up in 2024, the government is positioning itself to tell voters that it cut taxes during campaigns. For residents who are now facing a crisis, this future promise does nothing to alleviate the current pressures.
Fuel Duty Cut
Another key announcement was the 5p per litre cut in fuel duty until March 2023. Fuel prices soared by nearly 50% since the pandemic began and are reaching all-time-highs. Sunak hailed his cut, claiming it was the biggest cut in history and would cost the treasury £5 billion. Despite this, the 5p cut is not expected to bring about much change for drivers. Frustratingly, petrol stations raised forecourt prices just hours before the fuel duty cut announcement. Therefore, consumers only saw minimal price decreases or none at all. Even if the full 5p-a-litre reduction was passed directly onto consumers, with prices hovering between 160 and 180p for petrol and diesel respectively, the savings were minimal. The changes amount to just £3 off filling up a tank. Lowering the rate of VAT on fuel would have been another means to help motorists but no changes were announced.
What is more striking about the Spring Statement is not necessarily what in it, but what is missing. There was no reference to universal credit despite planned increases to benefits rising far less than inflation. It is expected that 1.3 million people1 in the UK could be pushed into “absolute poverty”. Numerous households will have to choose between heating their homes or buying food. Furthermore, given most of the poorest families do not have a car, the fuel duty cuts will do little to help the poorest in society. Some were also hoping for help with the rising cost of childcare. The average cost of full time nursery care has increased to around £13,000 per year and is rising rapidly. This is becoming increasingly crippling for working parents. With rising tax and household bills, April poses a huge dilemma for working parents in the absence of significant support. While the relief provided in the Spring Statement is positive, it doesn’t go far enough to help many of those in dire need of support.
The steps to help tackle the cost of living crisis outlined in Sunak’s Spring Statement have been welcomed, but many believe they simply do not go far enough. The fuel duty cut will have a negligible impact on prices at the forecourt, meaning drivers will still face struggles. Although national insurance payments will decrease, income tax payments will likely increase for many workers. This has led many to suggest that the government is giving with one hand and taking with the other. With inflation expecting to hit 8% by the end of 2022, many households will face a crisis that Sunak’s plans do little to address.