Home News Budget News 2022 Spring Statement Summary


2022 Spring Statement Summary

Chancellor Rishi Sunak delivered the 2022 Spring Statement yesterday, responding to the latest economic forecasts published by the Office for Budget Responsibility (OBR).

The Chancellor used the Statement to announce a 5p per litre cut in fuel duty for petrol and diesel; a £1,000 increase in the Employment Allowance from April; a rise in the starting thresholds for national insurance contributions (NICs) to £12,570 from July; and a 50% business rates relief for eligible retail, hospitality, and leisure properties from April 2022.

Mr Sunak also pledged that the basic rate of income tax will be cut by 1p in the pound before the end of this parliament in 2024.

£2.7k hike in national insurance threshold

In a move to give taxpayers some respite from the cost of living crisis, Chancellor Rishi Sunak announced plans to raise the national insurance threshold by £2,690

The threshold will increase by £2,690 from the current £9,880 to £12,570 from 6 July 2022, equalising the NICs and income tax thresholds for the first time, and potentially pointing towards a merger of income tax and NICs into a single threshold.

Sunak said: ‘The current threshold for national insurance is £9,500 and I will increase this by £3,000 – equalising the NICs and income tax thresholds from July 2022. This is a £6bn tax cut for 30m people, and is the largest increase in the basic rate threshold ever. It is a tax cut that rewards work.’

The rise in the threshold will cut tax by an average £330 per worker and will effectively balance out the new social care levy for employees which comes into effect from 6 April. The total saving for the 2022-23 tax year will be £267.

The government is also taking steps to ensure that self-employed individuals with lower earnings fully benefit. From April 2022 self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will continue to build up National Insurance credits but will not pay any Class 2 NICs.

This measure will increase the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs from 6 July 2022, aligning it with the personal allowance for income tax, which is set at £12,570 per year. The rate will remain until tax year 2025-26. From tax year 2026-27 onwards, the PT and LPL will follow the default position of being increased in line with the Consumer Price Index (CPI).

Fuel duty cut by 5p per litre

As petrol and diesel prices rise at unprecedented rates, the Chancellor cut fuel duty by 5p per litre across the UK from 6pm last night

The cut in fuel duty is going to be in place for the next 12 months with the Chancellor Rishi Sunak stating that the cut will represent savings for 36m consumers worth around £2.4bn over the period.

With the freeze in fuel duty, which was announced in the Autumn Budget, Sunak stated that savings for consumers will reach £5bn when taking into account that there no rise in the fuel duty escalator last year. The cut is worth £100 for the average car driver, £200 for van drivers and £1,500 for hauliers.

The fuel duty also includes a reduction of 5% for aviation gasoline (Avgas).

For unleaded petrol, the tax will drop from the current rate of 0.5795 to 0.5295 per litre

1p income tax cut in 2024

The Chancellor announced long-term plans to cut the basic rate of income tax from 20% to 19% in 2024

The Chancellor Rishi Sunak stated that the tax cut will affect 30m people applying to the basic rate which applies to employment income and non-savings, non-dividend income for taxpayers in England, Wales, and Northern Ireland.

Income tax rates are devolved in Scotland, but the Chancellor announced that the Scottish government’s funding is automatically increased as a result of this tax cut in order to benefit people in Scotland which will be initially worth £350m in 2024-25.

The Spring Statement notes that it is for the Scottish government to use the additional funding as they choose, including on reducing income tax or other taxes, or increased spending.

Sunak also claimed that in 2024-25, taxpayers will have an extra £175 in their take home pay annually, citing the Office of Budget Responsibility (OBR) predictions that inflation, which is forecast to hit 7.4% this year, will reduce down to pre-pandemic levels by 2024.

There will also be a three-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027. This will affect almost 70,000 charities and is worth around £300m.

The 1p cut to income tax is set to cut tax by £5.3bn in 2024-25, by £6bn in 2025-26, and by £5.9bn in 2026-27.

In the Spring Statement, the Chancellor said that this is the first cut in the basic rate of income tax since 2008-09.

The Spring Statement documents state that the change will be implemented in a future Finance Bill ‘provided that the fiscal principles set out above are met in future. The government will confirm plans for reforms to reliefs and allowances ahead of implementation’.

Employment allowance raised to £5k

In a bid to support businesses, the Chancellor announced a 20% rise in the employment allowance from the new tax year

This measure will increase the employment allowance by £1,000, from £4,000 to £5,000. This will come into effect from 6 April 2022.

Eligible employers are those who have secondary Class 1 National Insurance contributions (NICs), and additionally from the 2024 to 2025 tax year onwards health and social care levy liabilities of under £100,000 in the previous tax year.

As a result, businesses will be able to employ four full-time employees on the national living wage without paying employer NICs. This measure will benefit around 495,000 businesses, including around 50,000 businesses which will be taken out of paying NICs and the health and social care levy entirely.

In total, this means that from April 2022, 670,000 businesses will not pay NICs and the health and social care levy due to the employment allowance.

Contact us if you need advice

How can we help you?

Brearley & Co Accountants are pleased to offer a free, no obligation, initial consultation with one of our experts who will be happy to discuss your business needs and how we can help you.