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24 March 2022

Chancellor Unveils Spring Budget

Chancellor Rishi Sunak has announced his Spring Budget for 2022, unveiling a host of measures in a bid to ease the mounting pressure on household finances and the cost of living crisis. As part of his Budget, Sunak announced a 5p per litre cut to fuel duty and a raising of the threshold at which consumers begin to pay National Insurance.

Earlier on Wednesday, the Bank of England (BoE) announced that inflation had risen to a 30-year high of 6.2% in the 12 months to February, with rising fuel, energy and food costs causing a further squeeze on household finances. Warnings from the Office for Budget Responsibility (OBR), meanwhile, suggest that inflation could hit double figures later in the year and reach a 40-year high, ultimately reducing “real household disposable incomes on a per-person basis by 2.2% in 2022-23, the biggest fall in living standards in any single financial year since Office for National Statistics (ONS) records began in 1956-57.”

In recent days there have been growing calls for help from key figures in the consumer finance world, MPs and members of the public. On top of rocketing energy costs due to the lifting of the price cap in April, other factors such as increasing food prices will also impact consumers.

In one of the highest profile measures announced by the Chancellor, the 5p cut to fuel duty until March 2023 should go some way to easing rocketing petrol prices. According to motoring organisation the RAC, a 5p reduction in fuel duty will make it £3.30 cheaper to fill a typical family car with a 55-litre tank. This scheme will cost the Treasury around £2.5bn. Fuel duty currently accounts for 35% of the total price of petrol per litre, while VAT makes up a further 17%. The cost of fuel to the supplier and supply and delivery costs make up just 34% of the average price per litre. Some consumers, though, have criticised the plan to cut fuel duty as it won’t benefit those who do not own a vehicle. 

The income threshold for when people begin to pay National Insurance, meanwhile, will increase to £12,570 in July, equating to a tax saving worth over £330 per year for the “typical employee.” According to HM Treasury, the move will benefit nearly 30m households. Elsewhere, Sunak also pledged to cut the basic rate of income tax from 20p to 19p in the pound during this Parliament. The current Parliament will sit until 2024 at the latest.
Other measures announced in the Spring Budget include a 100% cut in VAT for homeowners installing energy efficient materials such as solar panels, heat pumps or insulation, while local authorities will receive another £500m for the Household Support Fund, creating a £1bn fund to help vulnerable households with rising living costs.

Commenting on the announcement, James Rowbury, Investment Research Lead, Redmayne Bentley, said: “In the wake of the fiscal response from the pandemic, Mr Sunak is unsurprisingly keeping the purse strings tighter than usual. Cuts to fuel duty will be welcome to households, though it is perhaps too little to stem the spiralling costs in the wholesale oil price. In a bid to increase the energy independence of the UK, it is good to see the Chancellor pledging tax cuts to green home improvements.”

Although the announcement will offer some respite to households, the OBR revealed that the UK economy is only forecast to grow by 3.8% this year, a significant drop from the previous projection of 6.0%. This is then expected to be followed by growth of 1.8% in 2023, and 2.1% in 2024.

While the measures introduced in the Spring Budget will help millions of households across the UK, there are still concerns about the rising cost of energy, food prices and other tax increases which look set to impact consumer finances through 2022 and beyond.
Chancellor Unveils Spring Budget
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