Spring Forecast Statement 2022

Chancellor of the Exchequer, Rishi Sunak, delivered his 2022 Spring Statement on 23 March, confirming implementation of the politically contentious 1.25 percentage-point rise in most National Insurance contributions, though with revised thresholds to mitigate the impact. He declared that his overall plan “builds a stronger, more secure economy for the United Kingdom.” The fiscal update included a number of specific measures and a new ‘Tax Plan’ which the Chancellor said would help families with the cost-of-living squeeze. Mr Sunak said, “People should know that we will stand by them, as we have throughout the last two years.”

Economic forecasts

Mr Sunak began his Statement by paying tribute to the soldiers and citizens of Ukraine, and said it was the strength of our economy that would enable the UK to help fund the Ukrainian army and impose sanctions on Putin’s regime. The Chancellor did, however, warn that actions against Russia “are not cost- free for us at home” and present a “risk to our recovery” before unveiling the latest economic projections produced by the Office for Budget Responsibility (OBR).

The Chancellor said the OBR had noted an “unusually high uncertainty around the outlook” as a result of Russia’s invasion, with its revised growth figures pointing to a more sluggish recovery; the UK economy is now predicted to grow by 3.8% this year and by 1.8% in 2023, both downgrades from last autumn’s forecasts of 6.0% and 2.1%, respectively. Growth is then expected to pick up in 2024, with OBR projections over the remaining three years of the forecast period stronger than last October’s predictions.

Mr Sunak went on to say that the most significant impact of the war in Ukraine relates to the cost of living, with the latest OBR figures suggesting inflation will average 7.4% across the remainder of this year, and peak at 8.7% in the final quarter. This followed on from the morning’s news that UK inflation had hit a 30-year high of 6.2% in the 12 months to February.

In terms of public finances, the forecasts show borrowing as
a percentage of GDP falling from 83.5% in 2022/23 to 79.8% by 2026/27. However, the Chancellor said that in the next financial year the UK is forecast to spend a record £83bn on debt interest, and that the OBR has warned that the UK’s ‘fiscal headroom’ could be ‘wiped out by relatively small changes to the economic outlook.’

Living cost support measures

During his speech, Mr Sunak outlined three specific measures that he said would help households deal with the cost-of-living crisis. These were:

• Fuel duty for petrol and diesel would be cut by 5p per litre from 6pm on 23 March with the reduction lasting until March 2023

• Homeowners installing energy saving measures such as solar panels, heat pumps or insulation will pay no VAT on their purchases for the next five years
• The Household Support Fund will double from £500m to £1bn from April, allowing local authorities to help vulnerable families cope with rising living costs.
• The government have said they are continuing to monitor developments impacting the cost of living and will be ready to take further steps if needed to support households.

Previous steps taken to support households include:

• Reducing the Universal Credit taper rate from 63% to 55%, and increasing Universal Credit work allowances by £500 a year to make work pay
• Increasing the National Living Wage (NLW) for workers aged 23 and over by 6.6% to £9.50 an hour from April 2022
• £9bn package announced in February 2022 to help households with rising energy bills.

Taxation

The Chancellor set out a three-part Tax Plan for a ‘lower tax economy’ which will cover the remainder of the Parliament. The key elements of the plan are:

The Spring Statement forms the first part of the plan – prioritising help for families with the cost of living – through the fuel duty cut (previously detailed) and an increase in National Insurance thresholds:

The Chancellor announced an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit from £9,880 to £12,570 from July 2022, to align with the Income Tax personal allowance. This is a tax cut of over £6bn and worth over £330 for a typical employee in the year from July

In addition, 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

The second part of the plan is entitled ‘Capital, People and Ideas’ and focuses on creating the right conditions training, as well as to close what he termed the “productivity gap” between UK businesses and those in other member countries of the Organisation for Economic Cooperation and Development (OECD). To this end, he pledged: