Chancellor Rishi Sunak made announcements about National Insurance thresholds, fuel duty, and VAT reduction in his Spring Statement 2022.
One of the most significant changes is a one-year reduction in fuel charge, VAT elimination on energy-saving measures, and an increase in national insurance thresholds.
Here’s a breakdown of some of the critical changes in the Spring Statement 2022 to help you figure out how they will affect your wallet.
- NIC threshold increased to £12,570 from 05 July 2022
- The basic income tax rate reduction to 19% from 2024
- Fuel duty reduction by 5p
- Employment allowance increased to £5,000
Income tax and national insurance
One of the most significant changes was the national insurance contribution threshold raised to £12,750. It is the maximum amount workers can earn before paying income tax or NI. Despite the 1.25% increase, the NI threshold increase helps people with lower incomes.
Between £40,000 and £50,000 is the tipping point, so someone earning £50,000 will pay more this year than last year. They’ll pay an extra £197.
The Chancellor also stated that starting from 2024, they will reduce the base income tax rate from 20% to 19%, the first reduction in 16 years.
A basic income tax rate of 20% applies to earnings between £12,571 and £50,270. Taxes are applicable on income between £50,271 and £150,000 at a higher rate of 40%, with an additional 45% applied to payments above £150,000.
Lower and average earners are pulled back from the brink by raising the national insurance threshold to £12,570 from 06 July 2022. Despite the April rate increase, 70% of people will pay less NI, a welcome relief to many struggling to keep up with growing prices. The promise of a tax decrease in 2024 provides some light at the end of the tunnel – but there’s still a long way to go first.
Fuel duty cut by 5p per litre.
To help motorists cope with rising fuel prices, the Chancellor proposed a temporary 5p per litre fuel duty reduction. The modification took effect at 6 p.m. on 23 March, 2022, and will continue for a year.
According to estimates, drivers could save an average of £3.30 when filling up a 55-litre family car. While every little bit helps, most motorists’ savings are unlikely to make a significant difference as fuel costs rise.
Petrol and diesel prices have climbed dramatically in the last year, averaging 147.6p per litre and 151.7p per litre in February 2022. And, as long as the disruption in the supply chains and Russia’s invasion of Ukraine continues, wholesale prices are unlikely to fall any time soon.
“Something isn’t working” with UK productivity investment, said the Chancellor, who quickly promised plenty of measures.
The employment allowance for small enterprises will increase from £4,000 to £5,000 on 06 April. It translates to a tax cut of up to £1,000 in savings for half a million small enterprises.
In the Autumn budget, there will be changes to research and development tax relief, a little-known government incentive that rewards corporations for investing in innovation, and a reduction in the corporate tax rate.
Household support fund
The Treasury is adding £500 million to the household support fund, claiming that this would help ensure that the neediest households continue to receive assistance with their food, electricity, and water costs.
England councils will allocate the fund, which will be able to assist people by providing small payments to satisfy basic requirements such as food, clothing, and utilities.
What people are entitled to will be determined by the criteria established by your council, so you’ll need to learn how it works and how to apply it.
The council will add funds to the £500 million that has already been donated since October 2021, increasing the total investment to £1 billion.
The Chancellor plans to reduce VAT on energy-saving materials such as solar panels, heating pumps, and roof insulation for the next five years from 5% to zero.
While this may assist homeowners in making their homes more energy-efficient, most consumers will experience a significant increase in their energy bills beginning next month.
From 01 April, the energy price cap will increase by 54%. Default charges will rise to £1,971 per year from £1,277, while prepayment tariffs will climb to £2,017 per year from £1,309.
How do you deal with increased living costs?
Understandably, many households will be worried about increasing pressures on their finances. While the rising cost of everyday necessities is inevitable, there are steps you may take to minimise the financial impact.
Create a Budget
Having a clear image of your finances is essential for effective money management. A budget allows you to keep track of your income and expenditures.
It might help you identify places where you can save money and cut costs. It will also assist you in anticipating income shortfalls that may affect your capacity to cover your expenses.
Save on necessities
Expenses such as mortgage or rent payments, household expenses, transportation, food, and daycare take most of your money. Taking extra steps to save money at the supermarket, for example, can help you unlock budget savings.
If you’re afraid about not being able to pay your necessary bills, you should get assistance as soon as possible. Your lenders and utility companies may have schemes to assist you with your repayments and statements. You might qualify for government assistance, such as universal credit, to top up your income. If you’re having trouble affording food, some organisations can connect you with local food banks in your area.
More measures are likely to be announced as part of the following autumn budget. The economic picture appears to be somewhat fluid, especially given the high rate of change in the worldwide environment. Over the next few years, household finances will be a hot issue as we all examine how we handle our money and assets. In situations like these, it’s usually beneficial to seek the advice of a professional.