Chancellor Rishi Sunak’s Spring Statement is essentially an update on the current state and future expectations of the country’s finances. Is the Spring statement a historic fail by Sunak?
The statement contained some important announcements about policies that will affect our personal budgets in the coming months and years.
We’ve rounded up some key points on how you, your family or your business may be affected.
September National Insurance update
The government announced that employees will pay 1.25p more in the pound in National Insurance contributions from April 2022.
In a significant move, the chancellor has now said that the earnings threshold at which people start to pay NI will rise.
NI will be paid on income over £12,570 a year from July – the same level as income tax starts being paid.
Self-employed people, who pay at a different rate, will see slightly less of a benefit. Over time, this threshold is frozen, which will steadily mean more low earners will have to pay.
Mr Sunak also pledged to reduce the basic rate of income tax by 1p in the pound before the end of the Parliament in 2024.
Prices are going up
Many of the vital things we buy, including fuel, food and energy, are rising in price.
The Office for National Statistics (ONS) said prices rose by 6.2% in the 12 months to February. This is the fastest for 30 years! Furthermore, the chancellor’s Spring Statement confirmed that consumers should prepare for necessities getting more expensive at a faster rate later this year.
Official forecasts from the Office for Budget Responsibility (OBR) suggest inflation will average 7.4% this year, peaking at around 9% at the end of 2022.
The big question for anyone with a job is whether incomes will rise in line with prices. The National Living Wage, for those aged 23 and above, will go up by 6.6%. With an hourly rate increase from £8.91 to £9.50 in a move announced earlier.
Some help with energy bills
Millions of households are facing a £693 (54%) rise in the cost of a typical annual gas and electricity bill. This is likely to rise to about £2,000, when the regulator’s new, higher price cap takes effect on April 1. Furthermore, the OBR has predicted a £850 rise in October.
Mr Sunak said he had already taken action in helping people with their bills, including a £150 council tax rebate for 80% of households. In addition, he follows this with a £200 discount on bills in October which will need to be repaid.
In a longer-term move, VAT will be slashed from 5% to 0% on energy efficiency products such as solar panels, heat pumps and insulation.
Pensions and benefits
A rise of 3.1% for benefits and the state pension will come into force in April. Unfortunately, this is well below the rising cost of living.
This prompted many charities to call on the chancellor to go further but Mr Sunak said nothing new about benefit and pension levels.
However, if inflation does reach the levels predicted by the OBR, then benefits and the state pension could see a rise in April 2023. In addition, this will follow the increase linked to the inflation rate in the preceding autumn.
Local councils will be given another £500m in the Household Support Fund, which supports vulnerable people with payments. Grants such as vouchers to help pay their bills, are also available.
Fuel duty cut
The average price of petrol has risen by more than 40p per litre since last year’s Spring Statement. The chancellor announced a 5p a litre reduction in fuel duty for the next year.
Take a look into how you can cut your transport costs, take a look at our money saving tips, here.