In the 2022 Spring Statement, Chancellor Rishi Sunak announced a package of policies to reduce the UK’s rising cost of living.
One of the most significant changes is a one-year reduction in fuel charge, VAT elimination on energy-saving measures, and an increase in national insurance thresholds.
Here’s a breakdown of some of the critical changes in the Spring Statement 2022 to help you figure out how they’ll affect your wallet.
Income tax and national insurance
Chancellor raised the national insurance contribution threshold to £12,750, one of the most significant changes. It is the maximum a worker can make before paying income tax or national insurance. Despite the 1.25% point increase, the increase in the NI threshold benefits median wages.
The tipping point is between £40,000 and £50,000, so someone earning £50,000 will pay more this year than last year.
Earnings between £12,571 and £50,270 are subject to a 20% basic income tax rate. Taxes are chargeable at a rate of 40% on income between £50,271 and £150,000, with an extra 45% levied on payments over £150,000.
Lower and average earners are pulled back from the brink by raising the national insurance threshold to £12,570. Despite the April rate hike, 70% of people will pay less for National Insurance, which will relieve many struggling to keep up with rising prices.
The promise of a tax reduction in 2024 is a ray of hope, but there’s still a long way to go.
From 06 April 2022, the Employment allowance increases to £5,000 from £4,000.
Household support fund
The Treasury allocates £500 million to the household support fund, stating that this will help ensure that the neediest people continue to get food, electricity, and water services.
England’s councils will allocate the fund, and it will be able to help people by providing small amounts to meet basic needs, including food, clothing, and utilities.
What people are entitled to will depend on the criteria set by your council, so you will have to know how it works and how to apply for it.
The council will increase the investment to £1 billion by adding cash to the £500 million already contributed since October 2021.
Private pensions
As the cost of living crises increases, the lack of pension announcements may push retirees to dig deep into their savings.
Reducing the basic income tax rate means that people will get lower tax relief on their pension contribution, meaning that the government top-up directly into their pensions will be less.
People will have to contribute more to their pensions to maintain the same retirement income.
People who save money should put more cash into their pensions over the next several years to take advantage of the existing 20% tax break on pensions.
Energy-efficiency savings
The Chancellor intends to lower VAT on energy-saving materials, including solar panels, heating pumps, and roof insulation, from 5% to nil for the next five years.
While this may assist homeowners in making their homes more energy-efficient, most consumers will notice a significant increase in their energy bills starting next month.
From 01 April, the energy price cap will increase by 54%. Default charges will rise to £1,971 per year from £1,277, while prepayment tariffs will climb to £2,017 per year from £1,309.
Fuel
There will be a reduction in fuel tax by 5p from its current level of 57.95p, but there is very little chance that the price of petrol and diesel on UK forecourts will fall significantly anytime soon.
Instead, we should view the cut as part of a more extensive “energy security” package that includes resuming hydrocarbon production licenses in the North Sea and pushing for more nuclear power generation.
The package’s overall goal is to address energy supply security. COVID (when demand was dramatically cut) and the Ukraine war had a significant impact on global markets, which led to the dramatic rise in the price of crude oil. The Chancellor has little power over global market conditions, but he has taken notice of motorists’ distress.
Fuel duty, VAT, the retailer’s margin, and transportation charges are all included in the price of a litre of gasoline. Fuel duty accounts for the majority of this, and therefore a 5p reduction may be considered moderate.
Keep an eye out for future changes
The Chancellor discussed some of the adjustments he plans to make in future tax years, some of which would directly affect your wallet.
The reduced income tax rate
The basic-rate income tax will be reduced to 19% in 2024, down from the present rate of 20%. More than 30 million people will benefit from a £175 tax cut, which is the first time the basic income tax rate has been reduced in 16 years.
Reformed business investment taxes
The government is exploring ideas to change taxes on business investment to address the shortage of capital investment in UK enterprises. The council will verify plans in the next Budget.
Simpler tax reliefs and allowances
The government’s Tax Plan document states that it wants to streamline the tax system, which might involve a reorganisation of the 1,000 existing tax reliefs and allowances in the Autumn Budget.
Final thoughts
These were some of the significant changes made in the Spring statement of 2022. More measures are likely to be presented as part of the following autumn budget.
Over the next few years, household finances will be a hot issue as we all examine how we handle our money and assets. In situations like these, it’s usually beneficial to seek the advice of a professional.