The chancellor has outlined a series of measures to help combat the rising cost of living in his latest spring statement, including increasing the national insurance threshold by £3,000.
Speaking in parliament today (23 March), Rishi Sunak began his speech by warning it is yet unclear what the impact of Russia’s invasion of Ukraine will have on the UK’s economic recovery, adding that the sanctions taken are not “cost free”.
The chancellor warned that the economy and public finances will likely worsen, “potentially significantly”, as the UK is forecast to spend £83bn in the next financial year on debt interest, the highest on record and four times the amount spent last year.
As such, to help the rising cost of living, the chancellor confirmed an increase to the national insurance threshold by £3,000. That means employees will be able to earn £12,570 without paying any National Insurance tax, with 70% of workers set to benefit from the tax cut.
The chancellor said this measure marks a tax cut for employees worth over £330 a year, adding that it is “the largest increase in a basic rate threshold ever”. In total, he said it signifies a £6bn personal tax cut for 30 million people.
Sunak also promised that before the end of this parliament in 2024, the basic rate of income tax is to be cut from 20p to 19p in the pound. “A tax cut for workers, for pensioners, for savers. £5bn tax cut for over 30 million people. Let me be clear with the House: it is fully costed and fully paid for in the plans announced today,” he added.
Also included in the latest measures is a fuel duty cut of 5p per litre, set to come into effect at 18:00pm tonight and last until March 2023. The fuel duty cut is set to amount to a saving of £5bn in total – marking “the biggest cut ever” to fuel duty.
In addition, the Employment Allowance is set to increase to £5,000 for small businesses from April, which the chancellor called a tax cut of worth up to £1,000 for half a million small businesses.
Meanwhile, R&D tax credits are set to be reformed, with Sunak stating he will “consider the generosity” of R&D expenditure in the autumn. For smaller business rates, discounts of up to 50% will be provided for retail, hospitality and leisure businesses, worth £1.75bn.
The chancellor also said he will double the household support fund to £1bn, with £5bn of new funding, which local councils are set to receive from April. It comes as he said the most vulnerable households will need “targeted support”.
Additionally, for the next five years, homeowners who have energy saving measures such as heat pumps, solar panels and insulation installed in their homes will pay 0% VAT. The savings on household energy bills are expected to be over £300 per year.
According to the chancellor his new tax plan offers the “biggest net cut to personal taxes in over a quarter of a century.”