On 23 March 2022, the Chancellor of the Exchequer, Rishi Sunak, delivered his spring statement to the House of Commons.
While these events always receive a lot of press coverage, the economic backdrop to the chancellor’s announcement this time round likely placed even more scrutiny on the government’s economic plans for the year ahead.
While figures from the Office for Budget Responsibility (OBR) showed that the UK economy is on course to grow by 3.8%, there are some serious issues up ahead.
With inflation likely to reach somewhere around 8.7% by the end of the year, household real disposable income is going to come under a lot of pressure. Add rising energy costs into the mix and, understandably, people are concerned.
In fact, these factors are likely to impact the growth picture for the coming years. The OBR predicts that GDP growth next year will slow to 1.8%, 2.1% in 2024 and 1.8% in 2025. With this in mind, households all over the country will be looking closely at what measures the chancellor announced.
So, what exactly did Mr Sunak talk about in his March Budget and how is it likely to affect us all over the coming months?
The headline announcements of the Spring Budget 2022 were all about tax. Post-announcement analysis tended to focus heavily on how equitable the distribution of tax is, and how it is likely to intersect with rises in the cost of living.
The key tax announcements were:
Income tax changes
While many were hoping that the chancellor would announce a cut to income tax in order to put a little more money in consumers’ pockets, he said he did not think it would be responsible to make such a move right now. Instead, he committed to reduce the basic rate from 20% to 19% in 2024.
There was also no movement on the tax-free allowance. This remains at £12,570 – and will likely stay there until 2026 following an announcement in the March Budget last year that it would be frozen for the foreseeable future.
A rise in National Insurance
The chancellor said the government remains committed to its previously announced 1.25â¯percentage point increase in National Insurance. He said this was necessary to ensure that health and social care continue to have a dedicated funding source.
But there is also going to be an increase in the threshold to £3,000 this year. This brings National Insurance contributions in line with the personal income tax allowance of £12,570. This means that those on lower incomes will likely pay less.
Temporary cut to fuel duty
Form 23 March 2022, fuel duty on petrol and diesel will be cut by 5p a litre. This measure will be in place for 12 months.
On the savings side of the equation, the Individual Savings Account (ISA) allowance for 2022-23 is going to be set at £20,000. This applies to both cash and stocks & shares ISAs. The allowance for Junior ISAs remains at its current level of £9,000.
The housing market in the UK is highly competitive and many worry about their ability to get on the property ladder at all. The chancellor did not announce any measures relating to the mortgage market or housing sector, other than a reduction in VAT on the installation of energy-saving materials of 5%.
The March budget announcement contained several measures related to pensions. For those that are already retired or about to take a leap out of the world of work, it is essential to stay on top of changes to the state pension, annual allowances and other factors that will directly impact the level of income you can enjoy.
Here’s what the chancellor announced:
State Pension set to rise
From April 2022, the State Pension will increase by 3.1%. This was originally announced in the last autumn budget. This will take effect whether you are eligible for the new flat-rate State Pension that was introduced in April 2016 or the old school basic State Pension.
No changes to the annual allowance
Your pension annual allowance sets the total amount you, your employer or a third party can pay into your pension plans in a given tax year.
After the Spring Budget 2022, this level remains at £40,000 or 100% of your earnings (whichever is lower). Your allowance is affected if you are a high earner or a non-earner, as well as if you have already started drawing down from your savings.
Lifetime allowance frozen
The lifetime allowance places a limit on the amount of pension benefits you can save up over the course of your life. The chancellor announced that the current limit of £1,073,100 will be frozen until 2026. If you go over this limit you will be subject to extra taxation.
It’s time to start planning
There is likely to be more measures announced as part of the upcoming autumn budget. The economic picture appears to be quite fluid at the moment, especially with the international environment also subject high levels of change. We will have to wait and see if the chancellor decides that further changes to taxation is needed.
Household finances are going to be a hot topic over the coming years as we all look closely at the ways we manage our money and assets. In times like these, it is always useful to get an expert opinion.
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