Spring Statement 2022: Summary

Published on Monday March 28, 2022

Budget changes announced by Chancellor Rishi Sunak in his Spring Statement 2022 will impact tax, national insurance, savings and pensions. In a bid to ease the burden of rising inflation and the UK’s economic crisis, he has raised the national insurance threshold by £3,000.

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This means people won’t have to pay income tax or National Insurance until they’re earning £12,570. In addition, the basic rate of income tax is to drop to 19% from the current 20% in April 2024. Fuel duty has been cut by five pence per litre as a further measure aimed at easing the burden on overstretched household budgets.

Official figures released prior to the Spring Statement revealed inflation was continuing to rise. In the 12 months to February 2022, prices rose by 6.2% – up from 5.5% in January.

Disposable income down

Combined with taxes, the Office for Budget Responsibility says “real household disposable income” will decrease by 2.2% per person between 2022 and 2023. This is the biggest drop in one year since 1956, when records began.

The changes in NI and income tax will impact employees, business owners and self-employed people. The chancellor says the changes are aimed at easing the burden on Britain’s low paid. However, calls for him to scrap the new health and social care levy on NI payments, beginning in April, were ignored.

Despite heckles of, “Is that it?” from the opposition when he announced details of the Spring Statement, the chancellor insisted the levy would go ahead, causing a further reduction in household income, alongside the rising inflation rates.

NI and tax changes

People pay NI to qualify for the State Pension and for certain benefits. Starting in April, NI contributions are due to increase by 1.25% to cover increased spending on health and social care. Then, the increase will be replaced by a new Health and Social Care Levy in April 2023.

The change announced in the Spring Statement will increase the threshold for paying NI to £12,570 – a figure in line with the current tax-free personal allowance.

For the self-employed, from April 2022, individuals with profits between the Primary Threshold and the Lower Profits Limit will still be able to build up National Insurance credits. However, they won’t pay any Class 2 NI contributions.

In the tax year 2022 to 2023, the income tax basic rate will remain at 20% for earnings between £12,570 and £50,270. People earning £50,270 or more will start to pay the higher rate. No new changes have been announced for standard tax-free personal allowances UK-wide. Last year, the chancellor said it will be frozen at this rate until 2026.

Personal or workplace pensions

There are no major changes in pensions, with the pension annual allowance limit for 2022 to 2023 remaining at £40,000 or 100% of your earnings in the tax year, whichever is lower.

The State Pension is due to rise in April 2022 by 3.1%. This will impact whether recipients are eligible for the old-style basic State Pension, or the new flat-rate State Pension launched in 2016.

From April, people qualifying for the full new-style State Pension will receive an increase from £179.60 to £185.15 per week. People on the old basic State Pension will receive a rise from £137.60 to £141.85 per week.

Impact on small businesses

Critics of the Spring Statement say the chancellor has missed an opportunity to help struggling small businesses. Calling the Spring Statement “disappointing” and “underwhelming”, business leaders have largely dismissed the changes as failing to address the huge cost pressures facing companies and rebuilding the economy.

While raising the thresholds for the payment of NI might help mitigate the impact of the 1.25% increase in the tax rate for employees, it won’t help employers.

The government pledge made last October to overhaul the tax credits system and extend credits to cover cloud computing and data purchases have not come into effect.

The chancellor’s pledge to make longer-term reforms to business taxes and incentives investment in 2023 has been welcomed. However, it was criticised as being too late to help businesses and the immediate challenges they are facing right now.

A survey by Opinium revealed only 27% of the British public think the measures in the Spring Statement will have a positive effect on their own finances.

To help stay on track of your business finances, and to negotiate the price increase minefield, employ the services of a professional accountant, such as DL Accounts.

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