Spring Statement: What The Measures Announced By Rishi Sunak Will Mean For Your Household Finances
Rishi Sunak claimed his latest measures would help ease the cost of living crisis
The Chancellor's Spring set piece came as the UK's fiscal watchdog warned living standards were set to fall at the fastest rate on record.
With soaring inflation rates and a warning from the Office for Budget Responsibility that the UK's living standards are facing an unprecedented squeeze, Chancellor Rishi Sunak made a set of several announcements aimed at helping people with the cost of living.
The main announcements unveiled by Sunak in his Spring Statement included a cut to fuel duty and a change to the National Insurance threshold, but how will they impact family budgets in the months ahead?
Pressure at the pumps is set to be slightly eased by the Chancellor's announcement that fuel duty will be cut by 5p a litre for the next 12 months.
The change, set to come into force at 6pm tonight, comes as families face record high petrol and diesel costs driven by a rise in wholesale prices in the early months of 2022 and exacerbated further by the Russian invasion of Ukraine.
According to the RAC, the reduction will mean a saving of around £3.30 when filling up the average family car.
Sunak said the cut was the "biggest ever" in fuel duty, which has only been reduced once previously in the last 20 years. Since 2011, fuel duty has been frozen at 57.95 pence per litre, meaning the tax is a significant portion of the price motorists pay at the pump, with a further 20% added on the total cost as VAT.
And while the change will give some relief to motorists, it may do little to dampen the impact of people's wallets if prices continue to rise. In just the last month petrol prices have risen by 18p per litre and diesel has soared by 27p. To put that in perspective, it means the average tank of fuel now costs nearly £90, up by around £33 compared to May 2020.
The change in fuel duty also does not remove the possibility that retailers could up their prices in response, something the RAC's fuel spokesperson Simon Williams warned earlier this week.
"Ensuring all drivers fairly and fully benefit from the fuel duty cut depends entirely on retailers reducing their prices and not using it as an opportunity to take a greater profit on every litre they sell," he said.
One of the largest announcements was a decision to raise the threshold at which people would start to pay National Insurance contributions by £3,000.
The move puts the threshold at the same level as the income tax personal allowance of £12,570 from July, with the Chancellor claiming this will mean a tax cut of around £330 for a typical worker.
For those earning less than £12,570, it means they will now be exempt from paying any income tax or National Insurance contributions.
The announcement came after Sunak faced pressure to drop a proposed 1.25% increase in National Insurance contributions to help raise funds for the NHS and social care services.
Paul Johnson, head of the Institute for Fiscal Studies said the rise would compensate around 70% of workers for the health and social care levy change which is set to come into place in April, and that those earning £35,000 or less would see a net benefit from the change.
But the Treasury small print confirms both the income tax and NI thresholds with now "remain aligned" meaning the four year freeze previously announced for the income tax threshold will apply across both - a move Johnson says will mean the benefits of the change will "dissipate somewhat over time and break even salary will gradually drop."
And Torsten Bell, head of the Resolution Foundation, said the tax cut would mainly benefit middle and top-income households, with only £1 in £3 going to the bottom half.
Sunak told MPs the original plan had been to raise the NI threshold by £300 this year, but decided to press ahead with the larger increase claiming it represented the "largest single personal tax cut in a decade".
Home Energy Efficiency
The Chancellor also announced a cut to the VAT rate on energy saving devices. Currently those wanting to install devices, such as solar panels, heat pumps or insulation are charged a 5% VAT rate.
Sunak said he was scrapping the VAT charge entirely for those wishing to make their homes more energy efficient.
According to the Treasury, this will mean the cost of having a solar panel installed on a home would be cut by around £1,000 with the Chancellor claiming he was only able to make the change as "thanks to Brexit".
He said the change would be brought in for five years, and said it would also be extended to include wind and water turbines, again saying this was only possible due to his ability to ignore "red tape" from Brussels.
Because of the Northern Ireland protocol he said those living there would not be able to benefit directly from the change, but that Northern Ireland would instead be granted equivalent funding for a scheme.
While the measures are likely to be welcomed by those planning to do works on their home, opposition MPs pointed out the changes would do little to those on low incomes who are already struggling to pay for their monthly heating and energy costs.
Household Support Fund
From April, Sunak said the household support fund would receive a further £500m - doubling the total level of support to £1bn.
The fund allows local authorities to decide how to spend the money to support people in their communities on the lowest incomes, including providing grants for essential costs, such as food, clothing and utility costs.
Sunak said the fund was directly aimed at supporting families with the cost of living, and suggested further support could be made available with the government "continuing to monitor developments" and "ready to take further steps if needed".
The original £500m had 50% earmarked for households with children - something which is likely to continue under the new cash boost.
The Chancellor also revealed a significant change to income tax, saying the basic rate would be cut from 20p to 19p in the pound but failed to give a firm date for the change, saying only it would be implemented before the end of this current parliament in 2024.
Sunak said income tax had only been cut twice in the last 20 years, and said providing a further cut had been made harder by the Covid pandemic and the impact of the war in Ukraine, but he insisted the cut would go ahead before that point.
That will do little to impact family budgets in the short-term, but likely works as a counterpoint to the increasing challenges from opposition MPs that the Conservative Party are no longer a tax-cutting party.
Given the lack of detail, the plan is possibly being kept in the Chancellor's back pocket to be implemented shortly before any future general election.
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