Spring Statement 2022: Key Announcements

Chancellor Rishi Sunak delivered his Spring Statement to the House of Commons on the 23^rd March 2022. The Chancellor announced a series of measures to support businesses, building on measures announced at the Autumn Budget and Spending Review 2021. Continue reading as we outline the key announcements in the Spring Statement 2022.

Economic Outlook

Two years after the commencement of the first UK lockdown, Chancellor Rishi Sunak delivered his Spring Statement 2022. While the government has essentially declared victory over the pandemic, the public finances still don’t appear all that positive. For example, on the morning of the Chancellor’s speech, the Office for National Statistics published its latest inflation estimate for February 2022 – 6.2% – caused by surging fuel and energy prices, exacerbated by the war in Ukraine.

Sunak started his speech with a summary of the economic forecast from the Office for Budget Responsibility (OBR). The forecast suggests the UK will not experience as significant a period of growth as previously projected. The OBR has downgraded its GDP forecast for 2022 to 3.8% from the 6% previously predicted in October 2021. According to the PBR, GDP will grow by 1.8% in 2023 and 2.1%, 1.8% and 1.7% in the following three years.

The Consumer Price Index (CPI) for inflation is expected to peak at 8.7% in Q4 2022, the highest inflation rate since the 1979 oil shock. That’s double what the OBR predicted in October 2021. Most working-age benefits and states pensions will rise by 3.1% in April 2022, and, according to the OBR, nominal wages will not grow fast enough to prevent a “significant fall in real incomes”.

Spring statement key announcements

The spring statement set out plans to create a new culture of enterprise, which aims to support sustainable growth by focusing reforms of the tax and regulatory system on three priorities: Capital, People and Ideas. To view the entire spring statement, please visit the government’s website.

Income Tax to decrease from 2024

Chancellor Rishi Sunak announced that the basic income tax rate will decrease to 19% from 2024. While signalling the move as a “tax cut for workers, pensioners, and savers”, he emphasised that this is the first time in 16 years that the basic rate has been cut. By 2024, the average taxpayer will be £175 a year, better off under the new basic rate tax code.

National Insurance Contributions threshold increase

The Chancellor has confirmed that, as planned, the 1.25% increase to National Insurance Contributions (NICs) will go ahead from April. He also announced that the threshold at which people have to start paying NICs would rise by £3,000 from the 2021/22 level. The new NICs threshold will be £12,570 and will take effect from July to bring the NICs and income tax threshold in line.

The Chancellor referred to these changes as the “largest increase in a basic rate threshold ever, and the single largest personal tax cut in a decade”. The changes will result in a £6bn personal tax cut for 30 million people across the UK, worth over £330 a year for an employee.

You can also expect to see changes to the threshold levels for NICs that self-employed people are required to pay. These changes do not take effect until the 6^th July for the 2022/23 tax year; an apportioned annual threshold has been calculated so that the benefit received by the self-employed is in line with employees. By 2023/24, the threshold at which employed and self-employed people start paying NICs and income tax will be aligned at £12,570. Please refer to the table below to see how the tax changes could affect you:

Employment allowance increase

The government is also expanding support to small businesses as they are increasing the employment allowance from £4,000 to £5,000 per year. This will save employers an extra £1,000 in NICs. The £1,000 will benefit around 495,000 businesses, including 50,000 taken out of paying NICs and the health and social care levy entirely.

Fuel duty cut

In response to the increase in the cost of both petrol and diesel, the Chancellor announced that he would be cutting fuel by 5p per litre. The fuel duty cut would reduce the cost of filling a typical 55-litre family car by approximately £3.30. The new duty will come into effect from 6 pm on Wednesday the 23^rd March.

VAT on energy-efficient home improvements

One way households can reduce their energy usage and energy bills are to adopt energy-saving instalments, such as heat pumps or insulation or solar panels. In 2019, the scope of the VAT reduced rate for energy-saving materials (5%) was restricted to comply with EU laws. This was because the UK was found to go beyond what was permitted. The Chancellor announced that homeowners installing such materials would pay no VAT at all. He also added that the government would overturn the EU’s decision to take wind and water turbines out of the scope for reduced VAT, so they will also benefit from no VAT.

Changes expected soon  

During the Spring Statement, the Chancellor announced several reforms and measures coming soon, with details of the changes expected to be revealed in the Autumn Budget.

Business investment tax reform

As the current super deduction is due to end in April 2023, the government is looking at potential tax reforms to encourage business investment. Any changes will be announced in the Autumn Budget 2022 following a business consultation. The main options under consideration are:

• Increase the annual investment allowance permanently, for example, to £500,000
• Increase the writing down allowances for main and special rate assets of 40% and 13% in the first year of expenditure, with standard writing down rates applying after that
• Introduce full expensing, allowing businesses to write off the costs of qualifying investment in one go
• Introduce an additional first-year allowance of 20%, on top of standard writing-down allowances on 100% of the initial cost over subsequent years

R&D tax relief

The government has confirmed its plans to reform R&D tax relief. From April 2023, all cloud computing costs associated with R&D, including storage, will qualify for the relief. The relief has also been focused on work carried out in the UK, although expenditure on overseas R&D activities can still be eligible as long as there are:

• Regulatory or other legal requirements that mean activities must take place outside of the UK
• Material factors such as geography, environment, population or other conditions that are needed for the research and not present in the UK

Training and the apprenticeship levy

In his speech, Sunak noted the requirement for improvements to adult technical skills, as UK employers spend “just half the European average on training their employees”. The government also stated that it “recognises that employers have frustrations” with the current apprenticeship levy system and looks at how “more flexible apprenticeship training models can be supported”. The government will weigh up whether further intervention is needed to encourage employers to offer training, including assessing the current tax system and the apprenticeship levy.

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