The Great Budget Contradiction – Our take on the 2022 Spring Statement
National Insurance Contributions
The Chancellor delivered his Spring Statement today and from the start he appeared to be fighting with himself. On the one hand the previously announced National Insurance Contributions ‘NIC’ increases of 1.25% which take effect from 6 April 2022 remain unchanged(sold as the Health and Social Care Levy) remain, but today he announces a reduction in NIC with effect from July 2022 by increasing the threshold at which NIC becomes payable to £12,570. This aligns to the threshold at which income tax becomes payable.
In another fight with himself, the Chancellor today announced that while increasing the rate of NIC by 1.25%, he is committed to decreasing the basic rate of income tax by 1% from 20% to 19% from 2024. It’s worth noting that NIC is paid by workers, while income tax is paid by workers, those in receipt of pensions and investment income, therefore workers are the ones alone bearing the brunt alone of these changes.
Ask a non-tax advisor and they’d explain this as self-cancelling and further complicating an already complicated tax system. People on low incomes will benefit marginally!
From April 2022 employers will be paying an additional 1.25% NIC, however in another contradiction SMEs will also now benefit from a further £1,000 increase to the Employment Allowance reducing their NIC cost.
Car Fuel Duty
Car fuel has been an on-going saga for the lives of the entire population of this country for too long, first the fuel was not getting to the pumps, now we can’t afford to go to the pumps. The Chancellor has heard our cries and has introduced a 5p per litre reduction in fuel duty for the next year (don’t fill up until after 6pm tonight!) but start budgeting to have to pay this from next year plus an inflationary increase.
To take the edge off the increases in energy costs, the Chancellor announced that the rate of VAT on energy saving materials such as solar panels, heating pumps and roof insulation will reduce from 5% to 0% for a duration of five years. Has the Chancellor tried to find a builder of late? (they are probably all next door at No.10!) The increased demand for builders created during the course of the pandemic has increased the cost of any building work significantly and it is normal to experience increased delays in availability. With the cost of living increasing, how is the Chancellor expecting already struggling households to finance these capital improvements?
Cost of Living Support
The Chancellor has also announced a further £500m to the ‘household support fund’ to support vulnerable households, this will be administered by local councils. This fund was first announced in Nov 2021 and our local council states on their website that they intended to use the fund for the distribution of vouchers to meet daily needs such as food, clothing and utilities and that they expected to have spent their allocation by 31 March 2022, some 4 months later. With the cost of living increasing exponentially on a daily basis how long with this additional fund last? 2 months, 3 months???
The Chancellor is certainly good at playing politics, he mentioned at every opportunity that he is a low tax chancellor and that it’s only because of the COVID pandemic that he has had to increase taxes. It’s no coincidence that the announcement to reduce income tax rates are due to start in the year our next general election is expected, is this enough to buy your vote?