Spring Budget 2022 Round up
Rishi Sunak has delivered his spring statement with a commitment to building a stronger, more secure economy for the UK.
The recent Russian invasion of Ukraine has added to the burdens on the UK economy. With consumers already facing financial pressures from rising energy costs and inflation, this spring statement needed to address some of these concerns. With a general election due in 2024, the tone of the statement also falls within a broader election strategy.
The chancellor set out his plans to boost growth and business investment, whilst starting to address the cost of living crisis.
Continue reading below for our summary coverage of the key points from the spring budget of 2022.
Rishi Sunak stated that the office for budget responsibility had forecasted growth of the UK economy to be 3.8% this year. This represents a fall in forecasted growth from 6% which was forecasted as recently as October 2021. The impact of inflation and the political situation caused by Russia’s actions in eastern Europe were blamed.
The economy grew by 7.5% in 2021 and GDP was forecasted to grow further in 2023 (1.8%), 2024 (2.1%), 2025 (1.8%) and 2026 (1.7%).
The downgrade in forecasted growth is amongst the largest of any big economy. It was also used as a way of explaining some of the more difficult choices the chancellor said he had to make. The financial sanctions imposed on Russia were also presented as not being cost free. With the implication that the UK was choosing to do the right thing, at the expense of some economic growth.
Cost of living
Financial forecasters are expecting the biggest real term fall in income since the 1970s. Taken alongside the dramatic rise in energy costs and other inflationary household pressures, the cost of living is an immediate concern.
- The chancellor stated inflation is forecasted to reach 7.4% this year.
- Fuel duty is being cut by 5p per litre for 12 months.
- The 5% VAT rate for households installing solar panels, heat pumps or insulation is now 0%.
The pressure on living standards that households are facing is unprecedented in the post-war period. The government was forced to act, but there is criticism that he could have gone much further.
The cost of servicing the UK’s sovereign debt is increasing. In the next fiscal year, the cost is predicted to rise to £83bn, which represents the highest amount on record.
With borrowing in this fiscal year 2021-22 at 5.4% of GDP, (and 3.9% 2022-23), this is below the forecasted 7.9% of GDP forecasted for 2022-23. This is because the UK saw greater than expected receipts, which the chancellor used to reduce borrowing, citing high interest rates as the reason to avoid increasing public spending.
The planned 1.25% increase in national insurance remains, despite calls for a Uturn amidst the financial pressures already facing households.
The national insurance threshold has been increased by £3000 this year, (it was planned to be £300). This sets the national insurance threshold for contributions at the same level as the personal income tax allowance, £12,570.
This threshold rise could impact 30 million people, creating a tax cut of up to £6bn.
The controversial rise in national insurance has been ring fenced for social care and the NHS. In this way its introduction is defended as being essential to tackle a larger public need.
R&D Tax credit relief will be made more generous, aiming to boost UK innovation and productivity.
The chancellor called for cuts to tax rates on business investment and said these would be included in his autumn budget.
The employment allowance for small businesses is to be cut to £5000, which means half a million small businesses will receive a tax cut worth up to £1000.
Need help understanding and making the most of R&D Tax credits?
The basic rate of income tax will be cut from 20% to 19% in 2024 (general election year)
The chancellor said that faced with the current uncertainties, it would be irresponsible to cut income tax sooner.
With a background of steep price rises and surging inflation, the chancellor was faced with mounting cross party calls to help out.
Although many people wanted more, there was some good news.
The national insurance threshold rose to £12,570.
Fuel duty was cut by 5p per litre until March 2023. (Saving the average car driver £100 over the 12 month period.)
VAT set at 0% for homeowners investing in energy saving materials such as solar panels, heat pumps or insulation. Down from 5%.
Income tax basic rate to be cut in 2024, from 20% to 19%.
R&D Tax Credit changes to be announced in the autumn budget, aiming to boost UK productivity.
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