Chancellor of the Exchequer Rishi Sunak’s 2022 Spring Statement acknowledged the rising cost of living but did little to address it in the short-to-medium term.
- Fuel duty was cut by 5p
- The basic rate of income tax will fall by 1p to 19p in 2024
- The NIC threshold was raised to £12,570
Chancellor of the Exchequer Rishi Sunak’s 2022 Spring Statement acknowledged the rising cost of living but did little to address it in the short-to-medium term. The rate of consumer price inflation has surged, reaching a fresh 30-year high of 6.2% year on year in February. Looking ahead, inflation is forecast to peak at 8.7% towards the end of the year, averaging 7.4% over 2022 as a whole, and the Office for Budget Responsibility (OBR) warned that inflationary pressures will “weigh heavily on living standards in the coming 12 months”. According to the OBR, real household disposable incomes per person are set to fall by 2.2% in 2022/23, representing the largest recorded fall in a single financial year.
“Inflation is forecast to peak at 8.7% towards the end of the year”
Following the Government’s decision in September 2022 to increase National Insurance contributions (NICs) by 1.25 percentage points from April 2023, the Chancellor increased the threshold at which people begin to pay NICs from £9,880 to £12,570. He also cut fuel duty by 5p per litre until March 2023, and VAT on domestic energy-efficient measures such as insulation, solar panels, heat pumps, and insulation was suspended for five years. The basic rate of income tax will fall from 20% to 19% in 2024. The Household Support Fund, through which local authorities help the most vulnerable households with rising costs, was doubled to £1 billion. Business rates for the retail, hospitality and leisure sectors were discounted by 50% to up to £110,000.
Although public finances have rebounded more quickly than expected, UK economic growth this year is expected to be slower than previously forecast. The OBR downgraded its growth forecast for 2022 from 6% to 3.8%. The economy is predicted to grow by 1.8% next year and by 2.1% in 2024. Borrowing as a percentage of GDP is predicted to decline from 83.5% in the fiscal year 2022/23 to 79.8% by 2026/27.
Reaction to the Spring Statement was mixed. The Confederation of British Industry (CBI) gave the Chancellor’s measures a cautious welcome but called for more action to tackle the challenges facing businesses. Meanwhile, the British Chambers of Commerce (BCC) described the Spring Statement as a “missed opportunity to rebuild and renew the economy”. Elsewhere, the OBR warned that the measures would offset only a third of the overall fall in living standards that would otherwise have take place in the next year.