Rishi has a plan!
There may be a cost of living crisis, there may be a war in Ukraine and Covid may still stalk the land but fear not, the Chancellor of the Exchequer has a plan! More of this exciting development in a moment, but first, what measures did the Chancellor announce to ease the immediate concerns of those facing a spike in the cost of living? In short:
- Fuel duty will be reduced by 5p per litre from 6pm on the day of the Spring Statement until March next year. I am tempted to park outside my local garage at the appointed time for the thrill of seeing the price drop straight away but I fear I may be disappointed… What are the chances a sudden rise in the price of oil strangely cancels this duty cut so the fuel price stays the same?
- VAT on energy efficient technologies such as solar panels and heat pumps will be reduced to 0% – all thanks to Brexit it seems (although apparently the Northern Ireland protocol prevents this happening in the province?) Again, let us see how much of this goes on higher margins for the suppliers rather than price cuts for customers
- The Household support fund will be doubled from £500 million – £1 billion – these funds can be deployed by local authorities to help the most in need
So much for the short-term measures to soften the blow to the ever increasing cost of living. These measures are at best, a mixed bag and certainly not as generous as some may have hoped…
As for the longer term, the main bulk of the Chancellor’s announcements relate to his shiny new tax plan which he brandished with great excitement in front of the house. So, what does this plan entail?
- The employee’s NIC threshold will increase from April to £12,570 – in line with the income tax personal allowance. This is genuinely good news for many and as the Chancellor stated, will mean that 70% of taxpayers will save more here than they lose by virtue of the increase in NIC to fund the NHS and Social care which will come in as originally planned. Oddly though, it seems this will only come into effect from July, and there was no reference to an equivalent rise in the threshold for employer’s NIC. So, (unless I missed something) employers will still take the 1.25% hit in full… The NIC threshold rise will also not really help those who have dividends in their income, whilst the increased tax does apply to those individuals, the NIC threshold does not…
- There will be a consultation on measures to encourage employers to invest in “the right sort” (undefined) of training – measures to be announced in the Autumn Budget
- The R&D tax credit system will be reformed to make it more economic and better value for money while also being more generous – it might just be me but I’m not sure all those things can be achieved at the same time. It seems likely there will be losers as well as winners through these reforms – again see the Autumn Budget for more details
- Measures to “reduce the tax on business investment” will also be announced in the Autumn. I didn’t realise business investment was taxed but I assume this means additional tax reliefs.
- The employment allowance for employers will increase by £4,000 to £5,000
- There will be a cut of 1p in the basic rate of income tax to 19% by the end of the parliament
A more cynical person than me may think this is less of a plan and more a hastily cobbled together list of half formed ideas in an attempt to create a feel-good factor, but of course I am not that person. However, it is interesting to note that the hype around the 1p basic rate cut seems slightly at odds with the fact that a large proportion of the population will shortly suffer a 1.25% tax rise – I guess a 0.25% net increase (but only after 2 years of a 1.25% increase) is better than it could have been…
Overall, I am not convinced that the measures announced merited the kind of dramatic summary with which the Chancellor brought his speech to an end with. The attempts to address the immediate concerns of the Chancellor’s much loved hard working families seem, at best, half-hearted while many of the longer term measures seemed to pose more questions than they answered. I do have a good deal of sympathy with the Chancellor in that he has faced a pretty tough set of challenges over the last few years, but I can’t help echoing a voice that drifted across the chamber during his speech – “Is that it?”
Reaction and analysis from the Spring Statement by Paul Brown, Tax Partner, WR Partners.