The Chancellor’s Spring Statement, delivered on 23 March 2022, was a bit of a break from the stated protocol. Spring Statements are supposed to be an update on the state of the economy only, with any tax policy changes being reserved for the Autumn Budget (usually in late October/early November).
This year though, the range of external pressures on the economy from Brexit, the Covid-19 Pandemic and the impact of the economic sanctions against Russia triggered a slight change, to seek to address the growing discontent due to rising inflation.
The 5p per litre cut on fuel duty on petrol and diesel was widely expected, with prices at the bowser soaring to £1.67 per litre on petrol and £1.79 per litre on diesel. The question remains though, whether the cut will be passed fully on to the consumer and if so whether it is enough, given the scale of the increase in the cost of living.
It had been mooted that the planned increases to National Insurance, through the imposition of the 1.25% Health and Social Care Levy from 6 April 2022, might be deferred. Instead, the Chancellor has opted to increase the threshold at which National Insurance Contributions start to be charged, aligning it with the Personal Allowance, so that the first £12,570 an individual earns will be free of both Income Tax and National Insurance. This will benefit low-income earners, with the Government estimating that almost 30 million people will benefit.
Continued reform and improvement of R&D tax reliefs, along with further cuts and tax reforms aimed to work with the 2021 Super-Deduction to incentivise business investment would be included in the Autumn Budget, it was announced. Further consultation on enhancing business investment in skills training was also touted. The Government’s eyes are clearly focussed on trying to ensure the weak growth in the economy, though much lower than that forecasted in October 2021, can be sustained.
The Chancellor further announced a cut in the basic rate of income tax from 20% to 19%, though not until April 2024. The basic rate of income tax has been 20% since 2008-09, so this represents a fairly momentous change. Further simplification of the complex network of reliefs and allowances that make up the UK tax system is also planned.
The changes, though minimal, are welcome, though whether they will do enough to combat the external economic pressures remains to be seen.
Head of Tax