With the cost of living set to rise even further this year, many of us will have been listening to the Chancellor’s Spring Statement hoping for a bit of help with the rising prices. So, what can we expect this year? To help give you a clearer picture of how Rishi Sunak’s Spring Statement affects you, we’ve summed up the key announcements and how they could impact your finances.
Inflation will average 7.4% this year
Put simply, inflation is a general rise in prices. So, if inflation is rising by 7.4%, it means that we can expect the cost of living to increase by quite a bit in 2022. To put this into context, the rate of inflation before the pandemic in 2019 averaged 1.79%.
So, how does this affect you? Well ultimately, this affects everyone. Many of us will have already noticed sharp rises in the price of energy, fuel and food. It’s also unlikely that the majority of the UK will see wage rises in line with inflation this year. This means that in real terms, we’re all a little bit worse off financially.
Fuel duty will be cut by 5p a litre for 12 months
In an effort to combat rising fuel costs, fuel duty will fall by 5p a litre for 12 months. The good news is this measure has already come into effect, meaning you should notice a saving of around £2 to £4 when you next fill up your car.
However, many say this isn’t enough to combat the recent jump in fuel prices. Although it is a small saving if you need to use a car regularly, for many of us it is probably only a drop in the ocean.
The threshold for National Insurance contributions is rising by £3,000
Now, this one is a little more complicated. While it is great news the threshold for National Insurance contributions will rise by £3,000 this year, it’s slightly offset by the planned 1.25% rise in National Insurance.
So, who is going to benefit? Well, those on low to mid incomes should be better off. Raising the threshold for National Insurance to £12,750 essentially means that you don’t make contributions on the first £12,750 you earn.
However, at the same time we’ll all be paying 1.25p more National Insurance per £1 that we earn. On balance it works out that if your annual income is about £34,000, you’ll pay less National Insurance and see the benefits in your take home pay. If you earn more than that, you’re likely to see a fall in your take home pay from April.
The basic rate income tax will be cut from 20% to 19% in 2024
Although this is good news for workers in the basic rate tax bracket (anyone earning between £12,571 to £50,270), this change won’t come into effect until 2024.
In 2024, basic rate income tax will be cut by 1%, giving many people a little extra in their take home pay. The Chancellor said it would be irresponsible to make such a tax cut right now with the level of uncertainty in the economy. So, unfortunately, even if you are in the basic rate tax bracket, you’ll have to wait two years to reap the benefits of this announcement.
Is there any additional help for those struggling?
Yes and no. The Spring Statement didn’t offer any new additional support for those on universal credits or benefits, and little to help those receiving pensions. However, there are a few silver linings that may help a little. These include:
- £150 council tax rebate for 80% of households in England (in council tax bands A to D)
- £200 discount on energy bills in October (although this will need to be repaid over the next five years)
- Local councils will be given another £500m in the Household Support Fund
- Energy efficient products such as solar panels, insulation and heat pumps will receive a VAT cut from 5% to 0%
There are also changes that were already due to come into effect from April. If you weren’t already aware, these may help to reduce the impact of rising prices.
- Benefits and the state pension will rise by 3.1% in April
- National Living Wage will rise by 6.6%, from £8.91 to £9.50 an hour (for those aged 23 and over)
- Minimum Wage for those aged 21 to 22 will rise by 9.8%, from £8.36 to £9.18 an hour
- Minimum Wage for those aged 18 to 20 will rise by 4.1%, from £6.56 to £6.83 an hour
Little relief for rising costs
Indeed, there were some good news stories in the Spring Statement 2022. However, there wasn’t much relief for anyone really worried about rising costs.
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