How the Chancellor’s Spring Statement will affect you
It was dubbed the ‘biggest net cut in personal taxes for 25 years’, but how will Chancellor Rishi Sunak’s announcements this week affect your personal finances?
Here are some of the changes he announced, as well as some hoped-for ones that he did not.
Increase in the National Insurance threshold
From April 4, the rate at which we all pay national insurance will rise by 1.25 percentage points. This rise is temporary, as from April 2022 the extra tax currently collected from this rise will be badged as a ‘Health and Social Care levy’ used to pay for the NHS and care systems. The levy, unlike National Insurance, will be payable by state pensioners who are still working as well as the working-age population.
Many had hoped that Sunak would delay the imposition of this rise because of the rising cost of living. However, he did not rescind the plans. Instead, he increased the threshold at which national insurance starts to be paid by £3,000 to £12,570. This brings it into line with the thresholds for income tax.
The new rules will insulate some earners from the increase in National Insurance altogether as they will no longer pay it, but others will still see our NI bills rise. The threshold between the two is set at roughly £34,000. Those earning below this level will pay less thanks to the threshold rise, while those earning above this level will pay more due to the increase in NI rates.
The government says that the change in threshold will save typical earners £330.
The threshold does not change until July, meaning that the NI rise will be felt before the threshold changes.
Fuel duty cut
For those of us who drive cars, the increase in the cost of petrol will not have gone unnoticed. War in Ukraine has driven up the price of fuel further, meaning that we pay more to fill up our tanks. In fact, the average cost of petrol is up more than 50 per cent in the last two years.
Sunak announced an immediate cut in fuel duty, which is the tax we pay on petrol, which should cut our petrol bills.
The government says that the change will be worth per year:
- £100 for the average car driver
- £200 for the average van driver
- £1,500 for the average haulier
The cut will be valid for a year.
A cut in income tax, but not yet
Sunak’s ‘rabbit out of the hat’ at the end of his Spring statement was a one percentage point cut in basic rate income tax, to 19 per cent.
The government says that taxpayers will gain £175 a year on average thanks to this, which is the first cut to the basic rate of tax in 16 years. However, there’s a huge sting in the tail: the change will not be implemented until 2024.
VAT relief on energy efficiency measures
For those who want to install energy-saving measures in their homes, a new commitment to cut VAT on insulation, solar panels and other energy solutions may help to save money.
Sunak said that this would save £1000 on average, but many of these installations are only available to homeowners with properties with suitable roofs and gardens.
Points to think about
While there’s little here to help many of us with huge inflation rises, there are some choices everyone can make now to ensure they make the most of what is available to them.
- Use salary sacrifice
Even though the threshold for paying NI is to rise, using salary sacrifice schemes to make pension contributions and pay for other benefits such as bike loans before your salary is paid to you can still save a significant amount for you and your employer, and take some of the sting from the NI rate rise.
- Pay into pensions now
Basic rate tax rates will be cut from 2024. This means that less will be added into your pension from the government when you contribute, because the government adds back the tax you’ve paid on the contribution itself. It is worth ensuring you take this into account when calculating what your pension might be worth in future (your financial adviser can help you) and perhaps make payments into your pension before the change if you have contributions you are expecting to make
- Consider energy efficient measures
If you’ve looked at the cost of solar panel installation or other energy efficiency measures and found them prohibitive in the past, the combined increase in energy prices and decrease in VAT might change the balance of the calculations. It may be worth looking at this again and seeing whether your views have changed.