Spring Statement 2022 Update - Did you see that coming?

23 March 2022

Despite the rumours of a reduction in income tax, you may have expected that the Chancellor would keep this in his back pocket for now. Possibly for the Budget later this year or the Spring Statement next year in preparation for the rumoured Autumn 2023 general election. 
 
Not many would have anticipated that the Chancellor would announce such a giveaway – or, more accurately,  would announce the promise of such a giveaway -  today.  We all know that Covid has to be paid for and that inflation and interest rates are rising.  Yet many are suffering hugely as a result of recent price increases, especially energy prices, and the increase in NICs this April to cover health and social care costs will hit many hard.  So the Chancellor has decided that we all need something to look forward to and of course any party needs to find a vote winner in the run up to an election.  The tactic of “there is light at the end of the tunnel” is not new, but the tactic of starting to prepare the manifesto so soon may be. 
 
The Chancellor has promised a reduction in the basic rate of income tax to 19% from April 2024.  However, the promised cut comes with the proviso that it will be done in a “responsible and affordable way”.  This may mean that personal allowances will remain frozen or that there will be a hike in the higher and additional rates of tax, or that world events or inflation rule it out. It may mean something else entirely,  but the promise of a tax cut so far in advance is a bold move and that proviso may be the Chancellor’s Get Out of Jail Free card when the time comes. 
 
The announcement today that the NICs thresholds for employees and the self-employed will increase in July to align with the personal allowance makes sense.  It clearly targets lower earners and is a progressive change, although there is an element of give with one hand and take with the other for those higher earners who will still see their overall NICs payments increase as a result of the planned April rate rise.
 
Looking at the numbers, the anticipated savings are: 
  • those earning in excess of £12,570 will see a NICs saving of roughly £330 a year from July 2022 (although this does not take into account the April rate rise and only looks at the increase in the threshold); and
  • those earning in excess of £50,270 will save £377 in income tax from April 2024, with those earning between £12,570 and £50,270 receiving a proportion of this saving.
That is a total possible combined income tax and NICs saving in excess of £700 a year from 2024, assuming no other tax rates change and ignoring the April NIC increase this year.  Whether this will be felt in the pockets of taxpayers will depend of course on the effects of inflation and general price increases.
 
The Autumn Budget speech later this year could be a long one as the Chancellor has also announced plans to encourage business investment and training and to improve R&D tax credits (including allowing cloud computing costs associated with R&D to qualify). Investment is key to the Chancellor’s “Capital People Ideas” priorities and the outcome of these plans should make for an interesting end to 2022.  
 
Finally, the 5p per litre reduction in fuel duty from tonight was possibly the most widely expected announcement. The Chancellor is under pressure to keep many sides happy and he probably had no choice but to reduce the duty. The real surprise is that the reduction will be in place for 12 months. The reduction in the rate of VAT to 0% on solar panels and heat pumps is also welcomed, although the benefit of this change will be felt by fewer.
 

FURTHER INFORMATION

If you would like to discuss anything that was mentioned in the Spring Statement, or any other tax related matter, please contact Matt Spencer or Laura Harper.

 

ABOUT THE AUTHORS

Matt Spencer is a partner within the Corporate and Commercial team, specialising in tax law, advising on and efficiently structuring a wide range of corporate and real estate transactions including M&A, land transfers, developments and leases.He is also expert in employment tax issues and the structuring of employee incentive schemes as well as VAT issues in the public and private sector. 

Laura Harper is a partner in the Private Client team. She advises both UK resident and non-UK resident/domiciled individuals, families and trustees on a wide variety of UK tax, trust law and international estate planning issues, including the planning to be undertaken when moving to or from the UK. She also has extensive experience working on cross-border matters and structuring involving family-owned businesses.

 

Share insightLinkedIn Twitter Facebook Email to a friend Print

Email this page to a friend

We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

Leave a comment

Skip to content Home About Us Insights Services Contact Accessibility