The Budget - 24 March 2022
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The economy and headline figures
The Spring Statement was presented by the Chancellor, Rishi Sunak, on 23 March 2022.
When the Chancellor stood up in the Houses of Parliament to deliver his Spring Statement it was against the backdrop of what the Office of Budget Responsibility has called 'the biggest hit to household finances since comparable records began in 1956-57'. Five months ago the tone was upbeat and optimistic with a 'better than expected post-pandemic recovery' on the horizon. Now the country is facing a debt interest bill of £83bn in the next financial year - the highest on record and four times the amount spent last year. To put this amount into context this figure 'exceeds the budgets for day-to-day departmental spending on schools, the Home Office and the Ministry of Justice combined (totalling £78.3 billion in 2022-23)'. With domestic interest rates already at a 30 - year high, inflation at 6.2% (and set to rise more sharply in April when regulated energy prices are to increase) the Chancellor set out a 'three-part plan' aiming to strengthen the economy over the remainder of the Parliament.
The first part of the Plan was for immediate tax cuts and measures to help families with the increased energy bills coming next month when the energy 'price cap' is increased. The second part confirmed the introduction of measures intended to promote growth and productivity within the economy with the third part as a reaffirmation of future tax cuts intended to increase the amount of money people have to spend.
Although this measure had been widely expected, the main 'headliner' was the cut in fuel duty. The announcement was for a temporary 12-month cut to duty on petrol and diesel of 5p per litre, representing a tax cut of around £2.4 billion over the next year. The RAC has said that this cut would reduce the cost of filling up a typical 55-litre family petrol car by around £3 but, although welcome, 'will only take prices back to where they were just over a week ago'.
National Insurance Contributions
Despite calls by many back benchers to scrap the NIC/NHS levy due to come in next month, the Chancellor decided instead to increase the NIC Primary Threshold and Lower Profits Limit from £9,880 to £12,570 to align with the single personal allowance. This measure will come in for the July payroll run but with the planned 1.25 percentage point increase in NIC for health and social care still going ahead in April, the Chancellor will be receiving two months of increased NIC receipts. The delay is to give payroll software providers the time to accommodate the change into their systems.
The realignment of the NIC and the tax starting point is a long overdue measure but note that the personal allowance has remained the same for two years now and is intended to be so for another three years which will result in more tax receipts as wages increase.
The self employed have not been left out, however, because as from April 2022, the Lower Profit Limit has been increased to align with the personal allowance. Therefore self-employed individuals with profits between the Small Profits Threshold (£6,725) and the (increased) Lower Profit Limit (£12,570) will no longer pay Class 2 NIC. Although no Class 2 NIC payments will actually be paid, the year will still count towards state benefits such as the state pension. For the year 2022/23 the Lower Profit Limit will be £11,908 comprised of the pre-July weekly Primary Threshold of £190 and the new, post-July threshold of £242.
The Employer's NIC Secondary Threshold will remain at the same level although the Employment Allowance will increase to £5,000 from £4,000 from April 2022. The Chancellor confirmed that this would benefit 'around half a million businesses with a tax cut worth up to £1,000 each'. However, the measure will not benefit the many SME company directors who withdraw a small salary with the balance as dividends as the Employers Allowance is not available to companies where only one employee is paid above the Secondary Threshold and that employee is the director of the company.
R&D tax relief
In the previous 2021 Autumn Budget the Chancellor announced that the system for claiming relief for investment in Research and Development (R&D) was to be reformed. This reform was confirmed in this Spring Statement; meanwhile, all cloud computing costs associated with R&D, including storage, will now qualify for tax relief as from April 2023. The definition of R&D for tax reliefs is also to be expanded to include pure mathematics as a qualifying cost. The intention is to include support for investment by companies that work with artificial intelligence, quantum computing and robotics.
From 1 April 2021 to 23 March 2023 the 'super-deduction allowance' enables companies investing in qualifying new plant and machinery assets to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
The Chancellor noted that this relief is to cease in a year's time and confirmed that he would be looking at 'fixing that' in the Autumn 2022 Budget.
Energy saving measures
The Chancellor is still looking to the future of energy saving measures by extending the 0% VAT relief available for installing such items as heat pumps, solar panels and insulation in people's homes for the next five years. The government estimates that 'a typical family having roof top solar panels installed will save more than £1,000 in total on installation, and then £300 annually on their energy bills'. Complex eligibility conditions for this relief are to be removed, making the measure available to more households however, not every 'typical family' will be able to afford to install these alternative energy sources.
Household support fund
The Chancellor confirmed that he would double the amount made available to the Household Support Funds operated by local Councils. The fund provides short-term financial support to vulnerable households struggling to afford household essentials.
Business rates relief and exemptions
It was announced that the business rates multiplier is to be frozen in 2022-23 and the retail, hospitality and leisure industry is to be allowed a 50 per cent cut on business rates up to £110,000.
Further business rates measures included the introduction of targeted business rate exemptions from 1 April 2022 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill, to support the decarbonisation of non-domestic buildings.
As part of an increased initiative to prevent fraud, the Chancellor announced the creation of a new Public Sector Fraud Authority with the remit 'to tackle waste and inefficiency across the public sector'. The authority is to work with counter-fraud work being undertaken by the British Business Bank and the National Intelligence Service.
The take-up of the Apprenticeship Levy has been disappointing. Calls from employers' representatives for a more flexible scheme resulted in the Chancellor announcing that the current scheme is to be reviewed to see what can be done to encourage employers to invest in adult training.
Unusually, the Chancellor made a point of reaffirming his promise that before the end of this parliament in 2024 the basic rate of income tax is to be cut from 20 per cent to 19 per cent. The hope is that when that time comes the economy is in a stable enough position to make that promise a reality.