Sunak started by blaming the war in Ukraine and Covid fallout and notably not Brexit on creating the current financial uncertainty, implying that there would be a considerable recoil from the sanctions imposed on Russia for its aggression over the rest of the year.

The Spring Statement failed to mention anything of any real substance around the housing market nor the 0.25 per cent base rate rise this week or its impact on homeowners. The full statement does however state: “The Chancellor re-affirmed the Bank of England’s two per cent CPI inflation target at Autumn Budget 2021, and the government remains committed to the independent monetary policy framework which has seen inflation average around two per cent between 1997 and 2019.”

The key points Sunak announced to soften the blow from the looming taxpayer’s tab centered around three points: The cost of living crisis, encouraging private sector growth, and sharing the proceeds of growth fairly.

Tackling the cost of living

The government is going to increase the annual National Insurance Primary Threshold from £9,880 to £12,570 from July to match the income tax personal allowance threshold. A typical employee should therefore save £330 as of July, according to the report.

However the chancellor didn’t make much mention of the fact that the average energy bill will go up by over £1200 this year, but it’s better than nothing.

Sponsored

Mind the affordability gap

Sponsored by Newcastle for Intermediaries

Encouraging the private sector

The government will be negotiating with major players in the private sector to see what can be done to create the conditions for private businesses to invest, train and innovate more to improve enterprise and encourage growth.

The full spring statement states: “Improving productivity is the only way to deliver sustainable economic growth and increase living standards through higher real wages.”

The statement was vague, but there should be more detail in the Autumn statement.

Sharing the proceeds of growth fairly

The government will reduce the basic rate of income tax one per cent to 19 per cent from April 2024, in two years time, once the recovery is predicted to have come to fruition.

This is the first cut in the basic rate of income tax in 16 years, and the first under a Conservative government since they came to power (with the help of the Lib Dems) in 2010. Alongside tax cuts, the government also wants to make the tax system ‘simpler, fairer and more efficient.’ It states it “will confirm plans for reforms to reliefs and allowances ahead of 2024”.

From April 2022 self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will continue to build up National Insurance credits but will not pay any Class 2 NICs. Taken together, these measures will ensure that the first £12,500 earned is tax free.

What this means for employers

Employment allowance and National Insurance

Small businesses will see their employment allowance lifted from £4,000 to £5,000 on April 6, 2022. The allowance is a tax relief scheme aimed at lowering their NI bills.

The NI threshold will also be lifted for employees from July to line up with the minimum tax allowance (up from £9,600), meaning workers will be able to earn £12,570 before they pay either -a £6 billion tax cut for 30m people.

Impact on the economy

The Office for Budget Responsibility forecasts growth of 3.8 per cent this year, 1.8 per cent in 2023, 2.1 per cent in 2024, 1.8 per cent in 2025 and 1.7 per cent in 2026.

It also expects inflation to average 7.4 per cent this year, however many financial leaders are predicting it will be closer to eight per cent.

Debt interest spending is also forecast to reach £83bn next year. This is the highest nominal spending ever, and the highest relative to GDP in over two decades, and is nearly four times the amount spent on debt interest last year, which was £23.6bn in 2020-21. The national debt interest exceeds the budgets for day-to-day departmental spending on schools, the Home Office and the Ministry of Justice combined, totalling £78.3bn in 2022-23.