With a lot of unclear economic uncertainty, rising tax and energy bills, as well as the tragic circumstances of war in Ukraine, much has been made of the Spring Budget and what the Chancellor of the Exchequer, Rishi Sunak, will announce. Mr Sunak will lay out his plans from the famous red suitcase after PMQs on Wednesday 23rd March 2022, under two months before local elections are to take place around the UK which will be the first indicator of how the increases in energy, fuel, taxes and living will affect the electorate.
The Budget will set out plans for tax changes, financial support as well as updating on the state of the economy. In December 2021, the Chancellor requested the Office for Budget Responsibility (OBR), to conduct an economic and fiscal forecast to be published on March 23rd 2022. This is a standard practice requirement for any Chancellor ahead of the Budget, however there was mounting pressure for the Chancellor to hold an emergency budget in February, due to the volatility of the economic situation post-COVID, as well as the sudden war in Ukraine. This didn’t transpire, however it’s expected similar to last year, that an Autumn Budget will take place where the situation will be assessed and further changes and measures announced.
The Chancellor did announce in February a package of support measures, to combat the large hike in inflation and cost of living crisis, including a £150 tax rebate for homes in bands A to D and £200 credit on energy bills to be repaid over the next five years. Many experts and much of the public are demanding more however, with the next few months expected to have a crushing impact on lower income households.
We predict what the Chancellor may announce come Wednesday March 23rd, and the impact it will have on the public…
What Is The Chancellor Predicted To Announce In The UK Spring Budget 2022?
This Budget is expected to be a ‘low-key’ affair compared to previous budgets of recent years, due to the large amounts of borrowing from the government because of COVID-19. Saying that, there are still huge issues and concerns which need to be addressed by Mr Sunak. Here are a few predictions as to what he may announce:
Pause On National Insurance Increase – The planned 1.25% hike in NI is expected to go ahead in a matter of weeks (April 2022), however many business and economic analysts are pleading with the government to halt the rise. For a £50,000 earner, the annual tax bill is expected to rise by more than £500, however a pause to legislation at the last minute could be highly damaging in credibility to the government so it remains to be seen whether this will transpire.
Energy Bill Support – The increase to energy bills will likely affect every single household across the UK, with a huge anxiety circulating regarding the impact on lower income households and families. It’s been predicted that the Chancellor could temporarily decrease the 20% green fuel levy and 5% VAT, or even remove these levies from fuel bills altogether, and include them in general taxation instead.
As the cap on fuel prices is raised on 1st April 2022, households and businesses will see on average a 54% increase in fuel bills, with fixed-rate energy agreements ending. Reducing VAT and green levies could save up to £400 on an average household’s annual fuel costs.
VAT In Hospitality To Stay At 12.5% – Currently, VAT for hospitality is at 12.5% which was lowered from the standard 20% figure because of the crushing impact of the pandemic to hospitality businesses. With rising household bills, there are huge concerns that people just won’t go out to support hospitality businesses especially with VAT returning to 20%. Many trade unions, including UK Hospitality, have urged the government to keep VAT at 12.5% which will go some way in helping thousands of small, local businesses to keep afloat. It’s increasingly likely Mr Sunak will grant a further extension to the VAT reduction, but until when is anyone’s guess.
Fuel Duty Freeze – Petrol and diesel is astronomically high at the minute, with the sanctions on Russia directly affecting the price of fuel for consumers. Hauliers have called on the government to freeze fuel duty for another two years, as record fuel prices threaten to wipe out profits entirely. A planned rise in fuel duty was cancelled at the Autumn Budget due to prices being at their highest level in eight years. Whether the government will choose to keep on extending this as fuel prices continue to rise will be one of the hot topics come 23rd March.
Tackle The Fiscal Drag – Fiscal drag has been speculated on a fair bit over the last few years. This basically means because tax allowances and thresholds are frozen (announced in last year’s Spring Budget, with personal allowances and income tax thresholds frozen until 2026), it causes increased income being brought into higher rates of tax purely through stealth. This forces lower income people to pay more tax, with an estimated 1.25m people dragged into the 40% tax bracket due to wage and price inflation. The impact of fiscal drag is likely to plunge lower and middle-income families and individuals into further economic turmoil.
Pension Increase – Back in September 2021, pensioners were bitterly disappointed at the government U-turn to suspend the state pension triple lock which was expected to come into force for the tax year 2022/2023. Many people believe it’s likely the Chancellor will increase the pension to 3.1% in April 2022, in a one-off measure which reflects new inflation forecasts to the increased cost of living. With the elderly generation usually favouring conservatives at the elections, the government will want to try and win back some pensioners after previously letting them down with the triple lock suspension.
We hope this has outlined to you the predictions and possible announcements that will be made by the Chancellor for the UK Spring Budget 2022. If you require any further information on any government schemes and announcements, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.