Chapters Financial News

Each year we listen to the Chancellor as they deliver their Spring Statement or Budget, looking forward to how the finances of the UK will fare into the future, based on current economic predictions, taxation and forecasts. On many occasions, especially in the last couple of years, we have assumed that they are stuck between a rock and a hard place when considering the accumulated debt mountain accrued during the pandemic. This public sector net debt has been running at about 95% of gross domestic product (GDP) (94.7% in February 2022 – source: ONS) for some months now and is the highest it has been since the early 1960s.

The problem this year is that many households are already squeezed financially, and with the cost of borrowing, petrol, home energy, food (this list is almost endless) increasing sharply, the higher National Insurance costs planned to start from April 2022 is now unpalatable, and certainly less affordable for many than they were first proposed in the autumn of last year (the last Budget).

To exacerbate this squeeze, the ONS confirmed on the morning of the Spring Statement that inflation had risen to 6.2% (Consumer Prices Index/ CPI) in February 2022. This rate is likely to continue to climb and household finances are going to be the focus of many individuals over the balance of 2022 and beyond.

Something had to give to allow UK families to keep their heads above water, and the Chancellor has made a change or two to help. This does not mean that the economic situation is not going to be challenging this year: it will be. However, as a supermarket once suggested, every little helps!

So, what was announced in this Spring Statement, or mini-budget as some refer to it, on 23 March 2022?

• The controversial health & social care levy, which will add 1.25% to employer and employee National Insurance Contributions from April 2022, will stay. Some had expected this to be scrapped, at least for a year. However, the NIC threshold will rise by £3,000 from July 2022 to £12,570 gross pa – the level at which basic rate income tax currently starts. This is worth about £330 per annum to those affected (around 30 million individuals)
• Fuel duty will be cut by 5p per litre from 6pm tonight (23 March 2022). This will last until March 2023.
• For the next five years, homeowners will pay no VAT on energy saving materials such as solar panels or heat pumps.
• The Household Support Fund for vulnerable households will be doubled to £1bn, with £500m of new funding. Local authorities will distribute the funding, which will be available to them from April 2022.
• The basic rate of income tax will be reduced to 19% from 20% in 2024.
• Help for businesses was announced. This included an increase to the Employment Allowance to £5,000 from April for small businesses, to encourage employment, and a 50% discount in business rates, up to £110,000, for retail, hospitality and leisure businesses from April.

All in all, not as much as we expected. However, as always, the devil will be in the detail of these proposals and plans, and it may take time to see the real advantages or costs of the changes being made.

Where you can, take a look at your costs and income, to see if any savings can be made to shoulder the burden of rising costs over the year ahead.

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

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