Mr. Sunak, the British Chancellor in his spring statement 2022 has made certain announcements that may have a bearing on the cost of living of households.
However, this year Mr. Sunak faces pressure due to the increasing inflation levels to act on cost-of-living. His spring statement 2022 has resulted in rising household bills and energy costs.
The cost of living has been showing signs of increase with reports that inflation rates could average 7.4% or higher in 2022,
Mr. Sunak’s first announcement was based on reducing fuel duty, which would cut from 57.95p per liter to 52.95p per litre, a 9% reduction. He also mentioned that these new fuel duties will last till March 2023 to help the UK with soaring prices. The Treasury said this will mean savings of £100 for the average car driver, £200 for the average van driver, and £1,500 for the average haulier and that it will cost the Treasury £2.4 billion.
It may be mentioned Motorists have been hit by record pump prices since Russia’s invasion of Ukraine led to an increase in the cost of oil because of supply fears. Fuel duty, a government tax which makes up part of the price when you buy petrol or diesel is currently 58p per litre and has been for 11 years.
Average pump prices hit new records on March 21, 2022, with petrol topping £1.67 a litre and diesel close to hitting £1.80. That left the cost of filling an average family car with petrol at more than £92 and nearly £99 for diesel.
The public has stated that the cut was a drop in the ocean given the recent huge rise in fuel costs, which have not fallen despite crude oil coming off its record highs earlier in March.
His next anticipated move was based on increasing the national insurance threshold. Ever since the crisis of ‘cost-of-living’ has come to light, the UK government has been pushed from all sides to plan a rise in national insurance contribution. In the past, Mr. Sunak and Boris Johnson have scrapped these requests; however, in his spring statement 2022.
National insurance will increase by 1.25 percentage points for workers to raise extra funds for the NHS and social care which would equate to a rise to 13.25% from 12%.
The rise will apply from 6 April 2022 to 5 April 2023, the next tax year. The income threshold at which people have to start paying national insurance will increase by £3,000 to £12,570.
The Government announced the national insurance increase in September to help fund the NHS and a new health and social care levy which would help fund the provision of care homes and personal care for those with disabilities or additional needs.
Under the current system, before the change in the threshold is taken into account, employees pay 12 percent national insurance on their earnings between £9,568 and £50,268.
From April this will rise to 13.25 percent, which is expected to disproportionately affect people at the bottom end of the income scale.
- Workers on a salary of £20,000 will pay an additional £130 a year
- Workers on £30,000 will pay £255 more a year
- Workers on £40,000 will pay £380 more a year
- Workers on £50,000 will pay £505 more a year
- Workers on £80,000 will pay £880 more a year
In an interview with the BBC, Martin Lewis, a renowned money-saving expert said that this threshold increase would be a massive advantage to the poorly paid workers around the UK. Mr. Lewis described this measure as the most important announcement from Mr. Sunak’s statement and explained how workers who earn under £20,000 per year would be saving up to £400 because of this measure alone.
However, many businesses are unhappy with this statement and demand that Mr. Sunak tosses it before it becomes effective next month.
The chancellor also stated that he has planned to reduce the essential tax rates from 20p to 19p by 2024, which, if taken place, would be seen as the first cut in tax in the last 16 years and is worth around £5 billion or per worker £170 on average. However, this measure seemed to be more of an election stunt rather than providing any immediate relief to the people.
The following measure in the spring statement 2022 was based on the ‘household support fund’ cash increase. The UK government began a program in October 2021 called the ‘household support fund.’
This program worked towards helping struggling households in the UK by providing £500 million to local authorities of England. In his statement, Mr. Sunak stated that this fund would be doubled to £1 billion from April 2022. The fund would be used to offer struggling households with small grants of money to help pay for basic expenses such as food, utilities, and clothing.
Mr. Sunak’s next measure was based on a VAT relief from 5% to zero on energy facilities such as solar energy, heat pumps, and installations. He calculated that if someone were to install solar panels in their homes, they would be saving up to £1000 on taxes, and on top of that, they would also be saving £300 on their utility bills per year. Greenpeace reported this measure as ‘a welcome start’ but also notified that for families to install these energy facilities, the government must have £10 billion available to help them.
Sunak also shed light on the employment allowance, which will increase from April from £4,000 to £5,000. This gives some breathing space to new startup businesses in light of national insurance payments.
Many organisations have mixed reviews of Sunak’s statement, one of which was from the national chairman of ‘Federation of Small Businesses’, Mr. Martin Mctague, who has a very positive review of the statement. Montague addressed the statement as a ‘good starting point’, that would give the small-scale businesses in the Uk some breathing space. He expressed his gratification towards the increase in employment allowance, which he further explained would help new employees with the cost of national insurance.
Director of Barrows and Forrest, Mr. James Forrester, also addressed the statement saying that with the announcement of 0% VAT on energy facilities alongside other measures such as a cut in fuel duties and the increase to the ‘household support fund’, an overall reduction in cost-of-living will be seen. This will provide some breathing room to people who are just surviving. However, Forrester did mention that this will not solve the problem completely.
CEO of ‘The Guild of Property Professionals, Iain McKenzie, spoke out about the spring statement saying that the UK has been struggling with the cost-of-living crisis, but this statement has provided some breathing space for the people of England. McKenzie shed some light on how the rising energy prices in the UK will lead to an increase in cost to provide power to homes; however, the 0% VAT measure on renewable energy sources will give the people some relief in these costs to run their households.
However, regardless of these positive measures, McKenzie stated that the rise in inflation of 7.4% would brutally affect people leading to reduced affordability of rent and mortgage payments. Even though the increase in the national insurance threshold will allow people to have more money to deal with these issues, inflation has been calculated to not be under control till 2024, and even though Sunak has taken a measure to cut down taxes till 2024, the next two years may still be stressful for the UK economy.
Based on the increased prices and soaring inflation, Mr. Sunak has been questioned on many accounts about how the government will help the people of England with these steeping prices. He has replied by saying ‘tough long-term decisions’ need to be taken to strengthen the economy.
These ‘tough long-term decisions can be seen in Mr. Sunak’s spring statement 2022, which has been looked at as a half-empty/entire glass situation. It has been reviewed in both positive and negative aspects, but only time will tell how effective these significant changes will be and what effect they will have on the British economy.
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