On the day the Office for National Statistics (ONS) released figures saying inflation was at 6.2%, Chancellor Rishi Sunak took to the House of Commons to announce tax cuts and more in his Spring Statement.
After the end of two years of Covid support packages, and with all pandemic laws lifted, higher prices are now becoming a reality with everyone starting to experience increases in the daily cost of living.
In just a matter of days, some of the new policies announced by the Chancellor will come into effect, but is all of it enough to support the public?
How will individuals be affected?
One of the main announcements for employees was that the National Insurance contributions (NICs) threshold will be increased by around £3,000, meaning that from 6 July people will pay NICs after reaching the £12,570 mark.
This means NICs are now in line with the income tax threshold, something the Conservatives have been promising since their 2019 manifesto.
Even with the proposed 1.25% uplift in NICs going ahead to pay for the NHS and social care, the Government says 70% of NICs-paying employees will pay less overall. This is a point of contention with some commentators.
“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,” said Torsten Bell, chief executive of the Resolution Foundation.
“Middle and higher income households will gain most from the rise in the National Insurance threshold, but only £1 in every £3 of additional support announced today will go to the bottom half of the income distribution.”
Along with the NICs thresholds rising, income tax will be cut from 20% to 19% from April 2024, the first cut to basic income tax for 16 years. The tax break, worth over £5 billion a year, will reduce tax payments for 30 million workers, pensioners and savers.
The cost of fuel has also been lowered by 5p per litre for both petrol and diesel in the fuel duty cut. Already in effect, the cut will last for the next year, helping to save hundreds of pounds for a wide range of drivers from domestic family cars to hauliers.
Fuel wasn’t the only expense the Chancellor plans to tackle. The household support fund, doubled to £1bn, will be distributed to local councils so homeowners who have been hit the hardest by the rising costs can apply for a grant.
Homes looking to adopt energy-efficient materials and resources, such as solar panelling, will not have to pay any VAT.
How will businesses be affected?
The rise of the NICs rates won’t just affect employees, but employers as well. Whilst this could be a cause of concern for an employer’s profits, the Chancellor increased the employment allowance from £4,000 to £5,000, meaning an extra £1,000 of earnings will be untouched by NICs.
Businesses reliant on vehicles will benefit from the fuel duty cut which will be in place for the next five years and is worth a total of £5bn.
The hospitality, retail and leisure industries will be getting a 50% cut in business rates as of April 1 but with a cap of £110,000 per business. These rates will then be reviewed in 2023 based on rental values from 2021, with many hoping for the outcome of lower bills.
Martin McTague, national chair of the Federation of Small Businesses (FSB) said:
“We are very pleased to see the Chancellor adopting our top ask for this Spring Statement: uprating the Employment Allowance to help small employers with national insurance costs.
“We originally put forward the Employment Allowance as a targeted measure to help small firms, and it has now been expanded three times since its creation.
“Together with a cut to fuel duty, these measures will provide crucial breathing space for our embattled small employers.
There will be an increase from the Government towards R&D of £5bn as well as tax relief, especially focusing on data and cloud computing costs and R&D carried out in the UK.
Plan for your future
Although not supported by all, the new proposals from the Government are a starting point for employers and employees; there is still room for improvement.
Many are being urged to start thinking about how they spend and save their money in order to improve their future situations. As financial experts, we are here to help you with this.
Contact us for accounting advice.