The chancellor has announced a number of measures to ease the burden of the rising cost of living on households in his spring statement.
Here are the winners and losers.
Low-income workers
The income threshold at which both employed and self-employed workers begin paying national insurance will rise by £3,000 to reach £12,570 from July. This will benefit 30 million working people, and would represent an annual tax cut worth more than £330 for a typical employee, even after the new health and social care levy of 1.25 per cent comes into force in April.
Employees
Most employees will see a cut in basic rate from 20p in the pound to 19p from April 2024 — a tax cut that the chancellor claimed would be worth £5 billion for workers. The basic rate of income tax is what you pay on earnings between £12,570 a year and £50,270. It will be the first time the basic rate of tax will be cut for 16 years.
Homeowners
Homeowners wanting solar panels, heat pumps, insulation and other energy saving products will see tax cut in April, because the VAT charged on them will be reduced from 5 per cent to nothing. Complex eligibility conditions restricting who could benefit from the previously discounted rate of 5 per cent, such as the over 60s or those on certain benefits, will also be removed, the Treasury said.
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The cut will be worth £45 million in 2022-23, rising to £65 million by 2026-27. The Treasury said this would save £1,000 in VAT for a typical rooftop solar panels installation — crucially the tax cut will only apply to what you are buying if it is also being installed for you at the same time.
This will apply from April for those in Great Britain, but not immediately for those in Northern Ireland because of the post-Brexit Northern Ireland protocol. The chancellor said this would be raised with the European Commission.
Drivers
From 6pm on Wednesday fuel duty will be cut by 5p — from 57.95p a litre to 52.95p a litre. The Treasury said it would save customers about £2.4 billion over the next 12 months. The cut will last until March next year. Fuel duty, combined with VAT, means that £47.30 of the cost of a 55-litre tank of fuel is tax. Once the change comes into effect, this will be reduced by £2.75.
Small businesses
The employment allowance, which allows small businesses to reduce their national insurance contributions, will increase from £4,000 to £5,000 from April this year. According to the Treasury, this will help 30 per cent of all businesses, and 3 per cent will be taken out of paying national insurance entirely. It is a tax cut worth up to £1,000 per employer.
Vulnerable households
An extra £500 million has been allocated for the Household Support Fund, taking the total to £1 billion from next month. The money is available via local authorities which will also have discretion over how the money is used.
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It is expected that the funds will help to lower essential costs including for food, energy and water bills. Help for housing and clothes may also be available. Councils could identify vulnerable households and provide support through vouchers, making direct provision of food, or issuing grants to third parties.
Spring statement highlights: a summary of the key points
Pensioners
The government did not restore the triple lock, which guarantees that pensions will rise in line with CPI inflation, average wage increases or 2.5 per cent, whichever is higher. The lock is currently suspended because of the pandemic. Pensioners also will not benefit from the cut to national insurance, because anyone over state pension age does not pay it. They won’t be affected by the health and social care levy next month, but they will be from the following April.
Pensioners are disproportionately affected by inflation because they spend more time in their homes, which they need to keep warm. Most pensioners are not working and they are less likely to commit to long-term energy efficiency products, so they won’t benefit from those tax reductions.
Middle earners
About 8.85 million people who earn more than roughly £40,000 a year will see no benefit in pounds and pence terms from the increase in the national insurance threshold. This is because any benefit will be wiped out by the extra tax they will pay from April as a result of the 1.25 per cent social care levy, which takes effect next month. Those earning £50,000 will be about £108 worse off, according to the wealth manager Hargreaves Lansdown.
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The NHS?
When he announced the health and social care levy of 1.25 per cent last year, Rishi Sunak pledged that the full £12 billion raised would go straight to the NHS. But now that he has cut national insurance and given back almost £6 billion to taxpayers, will that mean the NHS is going to get less?
Paul Johnson from the Institute for Fiscal Studies has already described the ring-fenced funds for the NHS as a “myth”.
Live Q&A: Your questions answered on Sunak’s spring statement
