Rishi Sunak delivered his Spring Statement at the end of March, with an update on the current state of the UK economy and future expectations for the nation.
The Chancellor also announced some tax changes that will affect people’s budgets in the months and years ahead.
Here are some of the top changes, and how they may affect your money.
- National Insurance threshold increase
The National Insurance (NI) threshold has been increased from £9,880 to £12,570 a year to help low-income workers take more of their pay home.
This means that from this July workers will not make NI contributions until they earn £12,570 a year.
According to Blick Rothenberg, the maximum that tax bills will be cut by as a result of the change in the NI threshold will be about £330.
Until July, however, previous decisions on National Insurance will have already come into effect from the 2021 Autumn Budget. This means that employees, businesses, and the self-employed will pay 1.25p extra in tax for every pound they earn.
For lower earners the change this July will cancel out the NI surcharge, but higher earners will still be worse off overall.
- Fuel tax cut
The Chancellor announced a 5p a litre reduction in fuel duty for the next year, which will take out some of the burden of rising fuel prices.
The move would theoretically knock £3.30 off the cost of filling a typical 55 litre family car, according to motoring organisation The RAC.
The change came into effect on the same day as the Spring Statement, but has taken time to feed through to prices as suppliers buy fuel wholesale, which means the ‘cheaper’ fuel takes time to reach petrol stations.
Whether it has really helped family budgets remains unclear too. As a result of the war in Ukraine, the price of fuel has been fluctuating significantly at the moment, meaning the tax cut can be amplified or nullified one day to the next.
- Future income tax cut
An income tax cut will take effect in April 2024. At that point, the Basic Rate of Income Tax will be reduced from 20% to 19%. The Statement said it would be worth an average of £175 a year to 30 million people.
But for the 2022-23 tax year the Basic Rate Income Tax rate will remain at 20% on earnings between £12,570 and £50,270. This means that most people will start to pay the higher 40% rate when they have income of £50,270 or more.
These income tax thresholds were frozen by Sunak at a previous Budget. As they are not rising with inflation, more people will be tipped into higher tax brackets as their earnings increase – in effect a stealth tax.
The future 1p cut for Income Tax has implications for pensions too. Cutting the basic rate by a penny will mean that pension savers receive less relief on their contributions at that level.
Savers have been warned that in order to keep on track with their long-term goals, they will have to save more into their pensions as a result.
- Help on energy bills
Millions of households are facing a 54% increase in the cost of annual electricity and bill prices as the Ofgem energy price cap rose on 1 April. On average, this could mean that households will pay £693 more per year, up to nearly £2,000 annually for their bills, depending on the size and energy efficiency of their home.
The Chancellor has announced extra help for struggling families but did this ahead of the Spring Statement.
This includes a £150 council tax rebate for 80% of households (those in Council Tax bands A-D), followed by a £200 discount on bills in October which will need to be repaid, and an expansion to a support scheme for vulnerable people.
Sunak also cut the 5% VAT charge on energy efficiency measures such as solar panels and heat pumps, in order to encourage more households to upgrade their homes to run more cheaply and environmentally-friendly.
- Rising benefits and State Pension
State pension and benefits are rising by 3.1% in April. However, with inflation currently running at around 7.0% this is well below the rising cost of living, with many charities now calling on the Chancellor to go further.
The Triple Lock has been suspended for the State Pension, but is due to be reinstated next year, which will give pensioners a much healthier increase, currently forecasted at around 7.5%. This means the State Pension could go above £200 a week for the first time.
Local councils will be given another £500m in the Household Support Fund, which supports vulnerable people with payments and grants such as vouchers to help pay their bills.