Spring Statement 2022: Sunak raises NI threshold as OBR warns families face record fall in real income

Chancellor hails his ‘largest ever tax cut’ as OBR projects ‘biggest fall in living standards’ on record

Rishi Sunak says UK should prepare for economy to worsen 'potentially significantly'

Rishi Sunak has delivered his mini-Budget to give people a helping hand with their finances as inflation hits a 30-year high.

The chancellor announced a 5p fuel duty cut and a rise in the National Insurance threshold by £3,000. He also announced that the OBR expects inflation to rise further this year, to 7.4%.

The rate of Consumer Price Index inflation jumped to 6.2 per cent in February, from 5.5 per cent in January, the ONS said on Wednesday morning.

People will have an extra £3,000 that they will not pay national insurance on, under the “largest ever” tax cut announced by Mr Sunak.

He said the government’s cut to fuel duty would represent the “biggest cut to fuel duty rates ever”. Labour criticised Mr Sunak for “not understanding the scale of the challenge.”

The Office for Budget Responsibility revealed that the rise in inflation to a predicted 40-year high this year would trigger “the biggest fall in living standards in any single financial year since ONS records began in 1956-7”.

Key Points

• Households face 'unprecedented fall in living standards’
• Energy bills may be £1,500 higher by end of year – OBR
• Bottom half of earners only get 1/3 of new support – RF
• Basic rate of income tax to be cut to 19p by 2024, Rishi Sunak says
• Inflation rises to 6.2% in February from 5.5% in January, ONS says
• Charts show how UK inflation has accelerated

[23 March 2022 17:59 · Liam James]

Fuel cuts ‘won’t stop price rises on businesses'

Another member of the public responds to Rishi Sunak’s budget:

Phil Soskin, 75, lives in Rickmansworth, Hertfordshire, and said he has concerns about how expensive things will get in future.

“Fuel cuts seem a bit inadequate and won’t stop price rises on business, which will be passed on,” he said.

“Pleased about the tax, VAT and other cuts although they do seem rather token.

“Along with most people I am apprehensive how much my household energy costs will rise. What is affordable now might not be in future.”

[23 March 2022 18:17 · Liam James]

Bottom half of earners only get 1/3 of new support– RF

Rishi Sunak’s budget is “poorly targeted” at those who will be hit hardest by the cost of living increases, according to analysis by the Resolution Foundation.

The think tank said just £1 in every £3 of new support will go to the bottom half of UK earners.

Those in the top half of income distribution will gain £475 on average compared to just £136 for those in the bottom fifth.

The chancellor today set out support measures including a 5p cut to fuel duty and a £3,000 rise in the National Insurance threshold.

Torsten Bell, chief executive of the Resolution Foundation, said the chancellor had more scope to help poorer households as public finances are in a better than expected position.

Mr Bell said: “It’s hard to overstate the scale of the cost of living crisis coming, with the year ahead bringing the highest inflation in 40 years and the worst income squeeze on record.

“But while our household finances are being hammered, the public finances have actually improved.

“In response the Chancellor has prioritised burnishing his tax cutting credentials over support for the low-to-middle income households hardest hit by this cost of living storm.”

[23 March 2022 18:36 · Liam James]

Tory MPs say budget ‘well received'

Conservative MPs gathered at the 1922 committee appeared content after Rishi Sunak addressed them on Wednesday evening, with one saying the spring statement was “very well received”.

A second MP said “people tend not to hang around to ask questions when they are content” and while a Tory peer echoed the sentiments of his colleagues, they suggested problems can always arise when the detail becomes clearer.

The chancellor told reporters, it was a “good, happy day” – but provided no further comment.

The budget focused on measures to alleviate the pressure of cost of living increases – which were welcomed but fail to meet the rising costs faced by households.

Mr Sunak has also been criticised for declining to help the poorest, as benefits remain set to rise at a rate far lower than inflation.

[23 March 2022 18:54 · Liam James]

Britain heading for worst fall in living standards since 1950s, despite Sunak’s tax giveaways

Britain is heading for its biggest fall in living standards since the 1950s this year, despite a mini-budget in which chancellor Rishi Sunak slashed £330 off National Insurance for the average worker and took 5p off the tax on a litre of petrol (Andrew Woodcock writes).

The chancellor also promised a 1p cut in the basic rate of income tax in 2024, in what was immediately denounced as a pre-election bribe.

But he did nothing for the poorest, who see welfare benefits far outstripped by inflation which is expected to peak close to 9 per cent this year.

And he rejected opposition calls for a windfall tax on the bumper profits of North Sea oil and gas companies to pay for a cut in VAT on energy prices.

Full report from The Independent’s political editor here:

[23 March 2022 19:11 · Liam James]

NI threshold increase will help but benefits will reduce over time, say experts

Raising the National Insurance threshold will help soften the blow from the new health and social care levy but the benefits will wane in time, experts said.

Nearly 30 million UK workers will have their taxes cut through the rise in the threshold at which NI is paid, while 2.2 million will be taken out of paying for NI altogether.

NI starting thresholds will rise to £12,570 from July, aligning income tax and NI in a tax cut worth more than £6 billion, according to the Treasury.

This will save the typical employee more than £330 in the year from July, the Treasury said.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The chancellor has been steadfast in his determination to implement the health and social care levy, but his actions today have at least helped lower earners by raising the threshold at which they would have to start paying it.

“These actions will put some money back in their pockets at a time when costs are on the rise.”

Shaun Moore, tax and financial planning expert at Quilter, said the benefits of the NI threshold increase “will reduce over time as wage inflation pushes people into paying more, and is reflected by the fact the government estimate the cost to the exchequer to reduce from £6.2 billion in 2022/23 to £4.3 billion in 2025/26.

“It does also create administrative problems for employers, who will have to start the tax year with one set of assumptions for national insurance calculations, to then have to change them from July.”

[23 March 2022 19:30 · Liam James]

Northern Ireland stuck with another £34m it can’t spend

An additional £34m for Northern Ireland in the spring statement cannot be allocated in the absence of an Executive, the Stormont finance minister has warned.

Conor Murphy said it will sit with the £300 million already waiting to be allocated with no Executive to approve it.

The resignation of Paul Givan as first minister earlier this year has left a planned three-year Stormont budget unable to be passed.

Mr Murphy said he asked the Stormont Treasury to ringfence the £34m for cost-of-living issues to allow him to allocate funds, but had not received a response.

He said he has also asked departments to bring forward costed plans for interventions to support families.

“We have as yet had no response from Treasury as to whether that can happen or not happen. If it doesn’t happen then it simply sits with the £300 million that we have sitting there unable to be allocated, and that is a huge disservice to people who are really struggling and could do with support from us,” he said.

[23 March 2022 19:48 · Liam James]

Energy price cap may rise another 40% in October – OBR

Energy bills may be around £1,500 higher by the end of this year, according to the Office for Budget Responsibility (OBR).

A 50 per cent lift of the energy price cap in April is set to drag bills up by more than £600 this year.

Due to an extreme rise in wholesale prices, the price cap is set to be raised again in October. The OBR forecasts it will go up 40 per cent, to £2,800 compared to £1,277 last October.

The chancellor today announced measures to ease the cost-of-living crisis but households are set to gain at most a few hundred from the relief efforts.

Even when adding in the £150 council tax rebate and £200 temporary refund on bills, families cannot avoid being down several hundreds of pounds this year.

[23 March 2022 20:10 · Liam James]

Sunak ‘swindling’ British people says Ed Davey

Rishi Sunak is “doing a swindle on the British people”, according to Sir Ed Davey.

The Liberal Democrat leader said the chancellor has masked a huge tax rise by posing as the tax-cutting chancellor.

[23 March 2022 20:30 · Liam James]

Sunak: ‘I can’t protect everyone’

Rishi Sunak said he was unable to protect all households from the impact of rising global prices.

Asked about the Office for Budget Responsibility’s findings on the fall in household incomes, the chancellor told broadcasters: “We are facing the same challenges that many countries around the world are facing - that’s rising prices and high inflation.

“Inflation here is running a bit lower than it is in America, similar to what is happening in the eurozone and there is uncertainty ahead.

“I wish I could - but I can’t - protect everyone against the full impact of those global challenges but where we can make a difference, of course we will and that’s why the policies announced today are a significant intervention.

“They will put billions of pounds back in the pockets of hard-working British families.”

The Office for Budget Responsibility today slashed its growth outlook as it predicted inflation will now average 7.4 per cent this year and peak at 8.7 per cent in the fourth quarter – the highest level since the oil shock of the late 1970s and early 1980s.

[23 March 2022 20:50 · Liam James]

Spring statement: What does Rishi Sunak’s mini-budget mean for your finances?

Rishi Sunak sought to highlight his credentials as a tax-cutting chancellor on Wednesday, slashing fuel duty by 5p and promising a reduction in income tax before the next election.

But overall his spring statement means an increase in the tax burden just as the country is facing a huge reduction in living standards.

So, beyond the bluster and rhetoric of the House of Commons dispatch box, what does all of it mean for your finances?

Ben Chapman walks through the changes: