The Chancellor Rishi Sunak MP has just concluded his 2022 Spring Budget statement as he attempts to grapple with a high-inflation economy and a surging cost of living crisis.
Over the last few weeks, the UK has seen enormous increases to the cost of living, as Russia's invasion of Ukraine further pushes energy bills and petrol prices on an upward trajectory. Earlier this morning, the Office for National Statistics (ONS) reported UK inflation to be at 6.2%, which is three times higher than its inflation target of 2%. The Office for Budget Responsibility (OBR) sees inflation in the economy rising to an average of 7.4% over the course of the year. It also predicts that the UK economy will grow by a mere 3.8% in 2022, which is starkly lower than the 6% forecasted back at the October budget last year.
The Chancellor's statement attempted to address those who would be impacted by the cost of living the most - namely those on lower incomes. Here are the main announcements:
Fuel duty will be cut by 5p per litre (both petrol and diesel) until next March in order to help frequent drivers and businesses and combat the surge in fuel prices. The change will come into effect on 6pm Wednesday evening (23/03/2022).
Value Added Tax (VAT) will be scrapped on various energy-saving materials and devices, including solar panels, heat pumps and insulation in order to further mitigate the impact of increasing energy bills. The exemption will expire in five years time and the UK is working with the EU to make sure this can apply to Northern Ireland, because of issues with the Northern Ireland protocol.
The Household Support Fund will increase to £1bn (an extra £500m). The Chancellor said 'Local authorities are best placed to help those in need in their local areas so they will receive this funding from April'.
The threshold for making National Insurance contributions will increase by £3,000 from July this year. The Chancellor says this is approximately £6bn worth of savings to around 30 million people - 'People will be able to earn £12,570 a year without paying a single penny of income tax or national insurance'.
The Chancellor says that an estimated 70% of workers will receive a tax cut that is in excess of their national insurance contributions. Further, a new tax plan will 'create the conditions for high growth' and 'share the proceeds of growth fairly'. The new tax plan will see the basic rate of income tax cut from 20p to 19p in the pound before the end of the current Parliament (the next election is 2024). The tax cut is fully paid and accounted for, according to the Chancellor. Sunak claims his tax plan 'delivers the biggest net cut to personal taxes in over a quarter of a century'.
The Office for Budget Responsibility says there is 'unusually high uncertainty around the outlook' of the economy because of Russia's invasion of Ukraine and the economic sanctions imposed. However, Sunak says the OBR has not yet fully taken into account the impact of Russia's invasion, adding "we should be prepared for the economy and public finances to worsen - potentially significantly. And the cost of borrowing is continuing to rise."
"In the next financial year, we're forecast to spend £83bn on debt interest - the highest on record. And almost four times the amount we spent last year" he added.
Many have criticised the Chancellor's statement by saying the measures do not go far enough to address the current economic crisis. The think tank IPPR says the measures are 'woefully out of touch' because they do not protect the poorest households from the increasing cost of living, for example the statement does not increase Universal Credit payments, which is quickly falling behind the rate of inflation. They also contend that raising the National Insurance threshold will benefit the top 50% of earners far more than the lower 50% which may pull many families into financial hardship.