What Does the Spring Statement Mean For You?
All eyes were on Chancellor of the Exchequer Rishi Sunak last month as he gave his Spring Statement in the House of Commons.
In the face of soaring inflation and rising household bills, the pressure was on the Chancellor to come up with a package of measures to help ease the burden on hard-pressed consumers, many of whom are facing the impossible choice between heating or eating.
So did he deliver? Well, it depends on who you ask.
Tax Cuts or Tax Increases?
Mr. Sunak was keen to position himself as a tax-cutting chancellor; he talked about tax cuts repeatedly during his speech and even pledged to reduce the basic rate of income tax from 20p to 19p before the end of the current parliament.
He also announced a cut in fuel duty and that the income threshold at which people become eligible to pay National Insurance will go up to £12,570.
But the controversial 1.25% National Insurance hike, which many had said should be dropped in the face of the financial pressures people are facing, still went ahead.
In response, the Institute for Fiscal Studies branded Mr. Sunak a “fiscal illusionist” for claiming to have cut taxes when he is actually “presiding over a very big increase.”
As Tom Waters, Senior Research Economist at the institute, said: “The reforms imply a greater level of tax for almost all workers – especially those on higher earnings.”
The Resolution Foundation, meanwhile, pointed out that Mr. Sunak’s promise to cut income tax “only benefits those earning over £49,000 once the four-year freeze to the Personal Allowance is taken into account.”
Unsurprisingly, Labour were also critical of the Spring Statement, with Shadow Chancellor Rachel Reeves describing Mr. Sunak as “Ted Heath with an Instagram account”, adding: “the truth is that because of this government’s failure to get the economy growing, it’s this Chancellor that has put up taxes on families and businesses a staggering 15 times.”
And while many of the newspapers talked up Mr. Sunak’s plan to cut income tax by 2024, others were left distinctly unimpressed, with the Mirror, for example, leading with the headline: “Thanks for nothing.”
The Government has since hinted that further measures will be taken to limit the impact of rising costs, but whether this is in response to the backlash Mr. Sunak has received or part of a wider plan is unclear.
Economy Tipped to Grow, But Inflation Still Soaring
According to the Office for Budget Responsibility, the economy is set to grow by 3.8% this year, followed by 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026.
But the annual inflation rate is likely to average at 7.4% in 2022, and could peak at 8.7% before the end of the year.
That means the coming year could be very difficult for families trying to make ends meet, and economic growth forecasts could be optimistic if the cost of living crisis and waning consumer confidence means people simply aren’t spending the money that’s needed to drive growth.
Chief Executive of the Resolution Foundation Torsten Bell said: “It’s hard to overstate the scale of the cost of living crisis coming, with the year ahead bringing the highest inflation in 40 years and the worst income squeeze on record.”
Our financial planners at Questa Chartered are here to guide you throughout this turbulent period and advise you on managing your money.
Even in these tough times, our goal of helping you achieve what you want to get out of life is unchanged, and we’ll work with that objective firmly in mind. If you’d like to discuss how we could help you, please get in touch with us.
For a more detailed look at the Spring Statement, click here.