Chancellor of the Exchequer Rishi Sunak unveiled a mini-budget during his Spring Statement delivery. The changes to the budget come at a time of multiple crises – rising fuel costs and the ramifications of Brexit and Covid as well as the Ukraine situation – with many calling on the government to do more for individuals struggling with the rising cost of living.
To help you better understand what has been announced during the Spring Statement, we have outlined the biggest changes that are on the horizon below.
Many spectators had hoped that the Chancellor would announce some form of tax cuts to help slow down the rising prices across the economy. However, Mr Sunak claimed that now wasn’t the right time for tax cuts and said: “Tax cuts must be paid for, they must be prioritised and they must fit the economic circumstances at the time.”
The basic rate of income tax is expected to drop from 20% to 19% in 2024, some two years from now. Even though there is quite a delay, the news is still big. It’s the first income tax cut in 16 years.
The chancellor noted that there are issues with UK investment in productivity that the UK Government aims to address. To do this, they intend to do the following:
- Changes to research and development tax credits
- Tax rate cuts for business investment in the Autumn budget
- Increased employment allowance of up to £5,000 for small businesses
The pre-planned 1.25% increase in National Insurance contributions is here to stay and will act as a dedicated source of funds for health and social care in the country. It has been tweaked slightly so that the threshold is now £3,000 per year rather than £300. The Chancellor announced that it was the largest single personal tax cut in a decade, worth over £6 billion for over 30 million people.
Changes to lending and borrowing for this financial year are set at 5.4% GDP, falling to 3.9% next year. As a result, debt service costs are going to rise to new levels of up to £83 billion next year. Net debt for the public sector was forecast at 95.6% of GDP for this year and is expected to drop to 83.1% by 2026/27.
Cost of living
The Chancellor also noted that inflation is expected to average at around 7.4% this year. To help with the cost of living crisis, he also announced a fuel duty cut of 5p per litre for 12 months. This is expected to cost around £5 billion. Another measure to help with the cost of living is a 5% VAT rate for all households that install renewable energy sources such as heat pumps or solar panels.
The Chancellor outlined that statistics from the Office for Budget Responsibility (OBR) showed economic growth of 3.8% for this year. The GDP breakdown for the next few years was also outlined:
- 1.8 % growth in GDP for 2023
- 2.1 % growth in GDP for 2024
- 1.8 % growth in GDP for 2025
- 1.7 % growth in GDP for 2026
Whether or not these changes are going to make a difference remains to be seen, but at the very least, the UK Government is going in the right direction. It will take time to see how these changes can help alleviate the rising costs faced by many.