Rishi Sunak announced multiple measures to relieve the burden of inflation on consumers but left some analysts feeling underwhelmed.
Fuel duty will be cut by 5p a litre and the National Insurance (NI) threshold raised by £3000, Rishi Sunak announced in the Spring Statement today.
The new economic plan was highly anticipated as high inflation ramps up the cost of living, leading many seeking financial support from the government.
Just this morning, the Office for National Statistics (ONS) revealed that UK inflation reached 6.2% in February making the chancellor’s announcement even more important.
Worryingly, the data release only takes into account the first few days of the war between Ukraine and Russia, so next month’s statement may have show even higher rates of inflation after factoring in the worsening international relations and sanctions in place.
Trustnet looks at the key takeaways from today’s speech and what it means for everyday spending.
Latest outlooks from the Office for Budget Responsibility (OBS) show that high oil and gas costs and supply chain bottlenecks are likely to ramp inflation up further, reaching an estimated 7.4% this year.
Likewise, the OBS expects the UK economy to grow 3.8% by the end of 2021 and concerningly, that real householde disposable income will drop to its lowest since the organisation began recording data.
Change in real household disposable income
Source: Office for Budget Responsibility
Andrew Barr, wealth planner at Succession Wealth, said: “Having inflation under control by 2024 feels bold given where we are. What we’re really talking about is a more manageable level of inflation – so people will have to get used to it and knocking on their employers’ doors for pay rises. This will of course have an impact on businesses and investment markets.”
The threshold people in the UK can earn before paying NI will be increased by £3,000, bringing the annual un-taxed salary to £12,570. This will save workers around £330 a year.
However, Will Stevens, head of financial planning at Killik and Co, warned that the amount paid in NI will be higher for those earning above £38,970 due to increases in the Health and Social Care Levy.
With the cost of oil and gas rising rapidly, Sunak has taken measures to support people with energy bills by doubling the household support fund to £1bn.
Fuel duty will also be cut by 5p a litre as of this evening to combat the spike in petrol prices, especially since the UK made plans to cut off its supply from Russia.
Recent findings by BMO revealed that a third (29%) of UK adults are concerned by rising fuel prices, while one in two (49%) are worried about the overall increase of the cost of living.
These cuts were designed to lessen the cost pressure on consumers, but some, such as Martin Lewis, founder of Money Saving Expert, were not convinced. He said in a tweet: “If that’s all he’s doing on energy – it is limited and won’t impact the majority of households who will see a likely £1,300 average increase in year-on-year bills by October.”
Additional reductions were made for those looking to transition to clean energy, with VAT now removed for those purchasing solar panels and heat pumps to power their homes.
Myron Jobson, senior personal finance analyst at interactive investor said that these changes, which will remain in place for the next year, will be irrelevant to many, stating: “The policy completed ignores the plight of the almost 40% of UK households living in rented accommodation and feeling the full brunt of the hikes to energy bills”.
Sunak also released some pressure on the private sector, which has struggled through lockdowns over the past two years and today’s high inflationary environment.
He said that a lack of innovation in the UK market has led to a productivity gap with the US and has therefore issued a 50% business rate discount from April of up to £110,000.
Furthermore, employment allowance will also be increased to £5,000 in April to help support UK businesses.
The chancellor indicated further tax cuts can be expected in October’s statement and announced plans to cut income tax by 1 percentage point by 2024, bringing the rate down from 20p per £1 to 19p.
Jobson said: “Overall, shouts of ‘is that it’ is likely going to be the overarching sentiment shared by those struggling to stay financial afloat amid the cost-of-living squeeze.”