UK finance minister Rishi Sunak announced tax cuts for workers and a reduction in fuel duty on Wednesday in his half-yearly budget update.
Sunak set out measures that would inject about £17.6 billion into the UK economy in the coming financial year.
In his Spring Statement, Sunak announced a cut in fuel duty of 5p per litre which will last until March next year.
He said the basic rate of income tax would be reduced by 1p in the pound in 2024.
Sunak said he was increasing the threshold at which workers start to pay national insurance contributions by £3,000 from July.
“That’s a 6-billion-pound personal tax cut for 30 million people across the United Kingdom,” said Sunak, adding that it would save workers more than £330 a year each and was the largest single personal tax cut in 10 years.
But Sunak stuck to his plan to increase the level of national insurance contributions from next month to help fund more spending on health and social care.
“The actions we have taken to sanction (Russian President Vladimir) Putin’s regime are not cost-free for us at home,” he told the UK parliament. “The invasion of Ukraine presents a risk to our recovery – as it does to countries around the world.”
Steven Cameron, pensions director at Aegon, said: “Scottish taxpayers pay different tax rates on different bands of earnings compared to the rest of the UK, as the Scottish Government has chosen to use this devolved power.
“From 2024 these disparities could widen even further when the basic rate on income tax falls from 20% to 19% for the rest of the UK.
“Unless the Scottish Government follows the UK’s Government’s lead and scales back various rates, from 2024 everyone in Scotland earning above £14,732 will be paying more income tax that those resident in the rest of the UK …
“The Chancellor’s decision to increase the lower threshold of earnings on which employees pay National Insurance by £3,000 to £12,570 will be welcomed by many as helping mitigate the cost of living squeeze.
“There had been calls for the Government to defer the increase of 1.25% in NI, but Rishi clearly was not prepared to do so and instead has opted to make a major increase in the NI threshold.
“This will reduce the impact of the 1.25% increase for all, and will take anyone earning under £12,570 out of paying any NI contributions.
“However, increasing the threshold has longer term ramifications.
“Setting aside the 1.25% increase, which will be ringfenced to pay for social care and NHS support, raising the threshold will reduce the amount being collected in NI from today’s workers to pay for today’s state pensions.
“This will happen not just in the coming year but also in all future years, storing up longer term challenges for the funding of state pensions which are paid for out of NI on a pay as you go basis.
“There have been calls for the planned increase in state pension age to 67 by 2028 to be deferred, but having lower NI receipts will make that less affordable.
“Similarly, lower NI receipts could once again call into question the ongoing affordability of maintaining the state pension triple lock beyond this Parliament. Based on current predictions state pensioners could receive a bumper 8% plus increase in April 2023, which will take into account September’s projected inflation figure.
”Furthermore, at present, those above state pension age don’t pay NI on earned income so will not benefit from the threshold increase.”
Myron Jobson, senior personal finance analyst, interactive investor, said: “The Spring Statement was only designed to provide a snapshot of the UK’s financial standing, but this year, it has evolved into a mini budget to tackle the escalating cost of living crisis which is squeezing many household budgets to breaking point.
“A 5p per litre reduction in fuel duty could cut the cost of filling an average family car by around £2.75, which is small change compared to the recent hikes in the cost of fuel and would barely cover a cappuccino from Costa coffee.
“Despite a slight decrease in wholesale cost recently, fuel prices continue to rise. The oil companies are still sitting and happy: no windfall tax for them, so investors will be happy – as long as they are not green – as consumers take the pain.
“The nil VAT levy on energy efficient equipment such as solar panels does nothing to help alleviate the crushing cost of living pressures the nation’s most vulnerable individuals.
“The policy completed ignores the plight of the almost 40% of UK households living in rented accommodation and feeling the full brunt of the hikes to energy bills.
“There was some respite for low-income households in the form of an extra £1 billion in funding to the Household Support Fund. However, they might have to contend with large amounts of red tape to get much needed financial support.
“One fat rabbit out of an otherwise empty bag was the National Insurance starting threshold, which will rise to £12,570 from July, meaning hard-working people across the UK will keep more of what they earn before they start paying personal taxes.
“Overall, shouts of ‘of is that it’ is likely going to be the overarching sentiment shared by those struggling to stay financial afloat amid the cost-of-living squeeze.
“The bottom line for consumers is strap in for a heightened inflation that is expected to last until 2024 according to official estimates. The cost-of-living crisis is set to get worse before it gets better …
“While heralding the rise in employment levels, the Chancellor failed to address recent criticism of Kickstart Youth Employment scheme by the Public Accounts Committee, which labelled the early delivery of the scheme as chaotic and said it supported far fewer young people than predicted.
“For many young people, the plight of securing a job with meaningful career progression remains desperately out of reach after two years of lost opportunities during Covid.
“There was little reprieve in the Spring Statement to ease the plight of prospective students. Students starting university from September 2023 still face the prospects of having to repay tens of thousands of pound than graduates of yesteryear for university education.
“Under changes, announced last month, repayment term for loans will be extended from 30 to 40 years after graduation, and the income threshold at which repayments begin is set to be reduced from £27,000 to £25,000.
“The planned reduction change in the way interest on student loans is calculated from Retail Price Index (RPI) plus 3% to RPI plus 0% goes some way of easing the financial burden but overall, it is a raw deal for prospective students and could dissuade many from going to university education.”
National Institute of Economic and Social Research Associate Economist Urvish Patel said: “While the Chancellor’s move to cut fuel duty by 5p per litre until March 2023 is welcome, it does not provide the targeted relief needed to combat fuel poverty caused by surging household energy bills as real incomes are being eroded by inflation.
“The increase in the NICs threshold, and the increase in the Household Support Fund are welcome as they will go some way to filling that gap.”
Kevin Brown, savings specialist at Scottish Friendly, said: “The chancellor had no choice but to act today and the measures he has announced, such as the fuel duty cut and the increase to the national insurance threshold, will go some way to helping households with the escalating cost-of-living crisis.
“But for those families who are unable to tighten their budgets any further and don’t have savings to fall back on, it’s not enough. They risk being dragged into debt and having to carry the burden of inflation for longer than is necessary.
“It’s 30 years since inflation last topped 6% and that means unless you’re over 50, you have no experience of living costs rising as sharply as they are currently.
“If inflation reaches double digits it’s going to mean more and more families will have to curb spending to make sure they can cover their essentials costs and household bills.
“The damage falling consumer spending could do to the UK economy could be far worse than the cost of helping more households to get by.”
Mubin Haq, CEO, Abrdn Financial Fairness Trust, said: “With inflation skyrocketing, millions are facing a living standards meltdown.
“We needed the Chancellor to take urgent measures to help people with their day-to-day costs.
“But there were few new shoots of hope in this spring statement.
“The measures are not targeted at those most in need, especially those reliant on social security.
“With families up and down the country facing severe financial hardship, the Chancellor must uprate benefits in line with inflation to help those unable to meet their basic living costs.”
Gordon Fletcher, retail and business expert at the University of Salford Business School, said: “Reductions in the fuel duty and possibly in income tax as well as an increase in the NIC threshold appear to give some relief to workers. But with the prospect of inflation climbing beyond 7% this year and volatility in the fuel supply chain these advantages may quickly evaporate.
“As the Spring Statement was being prepared there must have been a point when Sunak considered what the next day’s headlines would say.
“Would this be about the cost of living crisis, post-COVID recovery, a new green economy or even a mini-war budget? What was offered up is in the end was a mixed bag that lightly promised on the first, gave nods to the others and leaned a bit too heavily on the last.
“These are changes that have little impact for pensioners or low income families in the lead up to next Winter. And reducing contributions in reduces government’s ability to service debt or support social services.
“A slight reduction in the VAT for heat pumps also offers no hope for these groups – although it might be bring enough appeal for making the second home a bit greener.
“Placing the blame on the impact of Russian sanctions may ring the government’s bell in showing international leadership but the many economic challenges we are now facing were evident long before tanks started rolling towards Kyiv.”
National Institute of Economic and Social Research deputy director for public policy Adrian Pabst said: “The Spring Statement is a missed opportunity to turn the ambitious ideas of the ‘Levelling Up’ White Paper into reality.
“There were no new announcements on investment or moves to devolve taxing and spending powers to local levels.
“Quick wins to promote higher productivity and living standards would have included an extra £500 million in funding for mixed HE/FE colleges in ‘left behind’ communities and a £500 million in loans for SMEs outside London and the South-East.”
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “While Rishi Sunak announced a number of welcome measures to help households cope with the cost of living crisis, these measures most likely will not go far enough to protect the consumer from a very challenging outlook.
“The rise in the National Insurance threshold and the cut in basic rate income tax at the end of this parliament will go some way to put more pounds in the pockets of voters ahead of the next general election, but it doesn’t necessarily help people with the here and now.
“With the war in Ukraine continuing to push up the oil price and utility bills due to rise sharply in the spring, and later in the year, inflation is beginning to bite for businesses and households.
“According to the latest figures, inflation in the UK is already at over 6% and will remain at worryingly high levels for most of the year while the Office for Budget Responsibility also slashed their GDP forecast for this year from 6% to 3.8%.
“While the unemployment rate is expected to be unaffected by the slowing of economic growth, it does feel as if we are entering a stagflationary period.
“It will be difficult for the economy to emerge from this without some additional stimulus, but with interest rates on the rise it is a tricky balancing act for the government and the Bank of England.
“The Chancellor still intends to cut taxes as we get closer to the next election and he will be hoping that the improvement in the public finances is not blown off-course by geopolitical events. An uncertain outlook could get even foggier in the months ahead.”
National Institute of Economic and Social Research principal economist Rory Macqueen said: “The Chancellor’s decision not to revise spending plans in light of escalating inflation forecasts will mean a sharp fall in resources available for many public services.
“Even departments which had been set for above-inflation increases will now be forced to choose between either large real pay cuts for their staff or cutting back on front-line services, or both.”
Chieu Cao, CEO of Mintago, said: “The NI hike has been looming on the horizon for some time – but that will not make it much easier for businesses to stomach.
“Rising inflation, interest rates and energy costs have already placed significant pressure on businesses’ finances. The increase to their NI bill is another factor jeopardising their ability to bounce back from the hardships of the pandemic.
“Crucially, companies must not panic. Rather than making rash, dramatic budgetary cuts, companies should take stock of all options available to them.
“And this might involve exploring lesser-known avenues, such as the government’s salary sacrifice pension scheme (SSPS).
“For example, Mintago’s calculations revealed that a business with 100 employees paying an average salary of £30,000 could save up to £17,879 in NI payments annually by adopting the scheme – potential savings that cannot be ignored.
“Without doubt, the coming year will be challenging for businesses given the economic landscape. So, savvy financial management is required, whether that is the SPSS or other initiatives.
“So long as businesses remain flexible, and seek guidance where necessary, they will likely put themselves in a stronger financial position over the months to come.”
Richard Eagling, senior personal finance expert at NerdWallet, said: “Cutting fuel duty could provide a vital lifeline to many households. That said, this will only go so far in helping struggling households.
“Indeed, soaring energy prices continue to place unprecedented pressure on household finances.
“And they are showing no signs of slowing down – so much so that a new report from Citizens Advice indicates that more than 14 million people may no longer be able to afford energy bills by October 2022.
“As such, the Government must ensure that households have easy access to such financial help.
“Whilst we wait for more information to be shared, households must try to remain calm and be as proactive as they can.
“Seeking guidance from charities like StepChange or Citizens Advice can help those facing financial difficulty. Further, comparison websites are available for Britons to review energy tariffs and check any offers for different energy providers.
“Unfortunately, it is unlikely that major savings will be made at the moment – but being proactive will certainly help individuals to regain a sense of financial control and ensure they are not paying more than they have to.”
Giles Coghlan, chief analyst at HYCM, said: “The Chancellor’s decision to cut fuel duty will somewhat ease the pain at the pumps – however, this may be a small mercy in the current climate. Hard on the heels of the Bank of England’s interest rate hike just last week, inflation has once again reached new heights on the dawn of the Chancellor’s Spring Statement, coming in hotter than expected at 6.2%. This is not exactly a surprise, but rather a sign of things to come.
“As long as the conflict between Russia and Ukraine persists, oil prices will be susceptible to further spikes. At the moment, $130 a barrel is the first near-term target, in line with the previous spike high area. Thereafter, investors can expect $150 to be the next benchmark, in line with highs seen in July 2008 – selling was strong at this level, and growth worries should keep oil pressured in the medium-term.
“Investors can expect more inflation concerns and surges in oil prices ahead. That said, in the commodity market, it has often been said that the ‘the best cure for high prices is high prices.’ When oil prices inch higher, producers tend to respond by producing more in the face of dwindling consumer demand. This is a self-corrective mechanism, which eventually results in a fall in prices”
Sam Martin, COO of Peckwater Brands, said: “Problems within the hospitality sector stretch far beyond Covid. From staff shortages to the rising costs of energy and raw goods, the sector is unlikely to return to pre-pandemic performance levels for some time.
“As such, the Government’s failure to acknowledge VAT rates will only serve to add to anxiety within the industry.
“That said, the hospitality sector has remained resilient throughout the pandemic, with new and creative ways to increase their output and revenues.
“For example, Peckwater Brand’s research found that 75% of such businesses incorporated takeaway functions into their operations, while 56% began running a virtual brand or dark kitchen from their premises. Such figures highlight the creativity within the sector, and its ability to overcome the current issues it faces.
“There will be no quick-fix to the problems within the hospitality sector – and planned increases to VAT is unlikely to ease concerns about the future.
“However, figures show the sector is willing to be flexible and open to operational changes throughout challenging periods. As such, I remain cautiously confident that we will see a gradual return to pre-pandemic performance in the coming years.”
Andrew Megson, executive chairman of My Pension Expert, said: “With inflation sitting at a 30-year high of 6.2%, the govenment’s promise to cut the basic rate of income tax to 19% by 2024 will certainly be welcome; so too will its promise to honour the triple lock throughout the rest of parliament. That said this is merely a sticking plaster for the sector.
“Systematic changes will be required to offer meaningful support to at- or pre-retirement individuals.
“For example, My Pension Expert’s research found that 64% of Britons aged 40 and over believe that simplifying the pension system would benefit pension planners.
“Almost half (47%) would like to see the government improve access to independent financial advice. Evidently, the UK’s pension problems run far deeper than just monetary support.
“Such changes will inevitably take time. As such, I urge savers to seek independent financial advice whilst they wait for progress.
“In doing so, savers will be granted a clear explanation regarding the inner workings of the complex pension system.
“What’s more, they will be able to build a retirement strategy tailored to their financial needs and goals. And this will likely instil some welcome financial confidence, despite such economic uncertainty.”
Scottish Financial Enterprise CEO Sandy Begbie said: “Today’s Spring Statement is set in the challenging context of war in Ukraine and a cost-of-living crisis that continues to accelerate, putting huge pressure on the economy.
“In the short-term, measures such as the removal of fuel duty will be welcomed, particularly by businesses which are passing down costs through their supply chains.
“The increase in the national insurance income threshold is also a positive step, giving some much needed breathing room to many working families.
“Some of the poorest households, such as those families with a disability or caring responsibilities who may not benefit from income-related measures, are likely to require more targeted support in the months ahead as the gap between their household income and costs grows.
“We will continue to collaborate with government and share insights on the impact of the cost-of-living crisis on consumers to identify how best to support these households.
“We welcome the intent of the future tax plan in relation to encouraging greater productivity and incentivising businesses to invest in growth and innovation.
“As the Chancellor rightly acknowledges, a key defence against falling living standards lies in a successful economy, innovation, and crucially, improving our energy security and continuing to invest in the transition to net zero.
“Scotland’s world-class financial services and energy sectors will play a pivotal role in this endeavour which will be the focus of discussion at our ‘Financing Energy Transition’ Summit later this year, which the Chancellor has been invited to attend.”
Scottish Government Finance Secretary Kate Forbes said: “The Spring Statement has failed to address the biggest challenges facing households today.
“With soaring energy bills and a cost of living crisis, the Chancellor has not used his Spring Statement sufficiently to provide lifeline support that could prevent households facing fuel poverty.
“The Scottish Government is providing a further £10 million to continue our Fuel Insecurity Fund into 2022-23, which supports people struggling with their energy bills.
“Most powers relating to the energy markets remain reserved and Scottish Ministers have repeatedly called for the UK Government to urgently take further action to support households – including a reduction in VAT on household energy bills and support for those on low incomes.
“We are doing all we can to tackle the cost of living crisis – including doubling the Scottish Child Payment from £10 per week per eligible child to £20 next month.
“The UK Government should have followed our lead and matched the 6% uprate on social security benefits which the Scottish Government is adding to eight of the benefits we deliver.
“The Chancellor failed to match that commitment which could have provided lifeline support to thousands of households.
“On taxation, we have already acted to introduce a 19% starter rate of income tax below the basic rate, in line with our commitment to progressive taxation, which makes Scotland the fairest taxed part of the UK.
“We will continue to take that approach when we set taxation policy in future budgets.”