Spring Statement

What does the Spring Statement mean for you?  

Rishi Sunak’s delivered his statement against a background of rising prices and pending tax increases and made a number of important announcements that could affect your personal finances. 

Here’s a summary of the key points:  

National insurance changes 

With the new Health and Social care levy of 1.25% set to be collected via increased employer and employee national insurance contributions (NIC’s) from April, the Chancellor was under pressure to delay. Instead he increased the level of earnings at which NIC’s start to bite, effective from July:

  • Employees and the self-employed will pay NIC’s on earnings over £12,570 up from £9,880
  • For employees the rate will rise from 12% to 13.25% and for the self-employed from 9% to 10.25% as previously announced
  • Employers facing an increased rate of 15.05% (up from 13.8%) on employee earnings over £9,100 saw no change
  • Lower earning self-employed will no longer have to pay class 2 NIC’s on earnings but will still benefit from an NIC credit.

Income tax

The headline grabbing announcement was the Chancellor’s intention to reduce the basic rate of Income tax from 20% to 19% from April 2024.

There was no change to the amount of tax-free income we can receive before paying tax, which remained at £12,570 or the tax bands which the Chancellor previously announced would remain frozen until April 2026. As incomes increase over time, it’s likely that a growing number of people will be caught in the 40% income tax net. It’s important to take advantage of the tax breaks available including Pension and ISA allowances.   

Fuel duty cut

To help soften the impact of rising prices, the Chancellor announced a 5p cut in fuel duty from 57.95p per litre to 52.95p for 12 months. A proportionate cut in the duty on red diesel is expected to result in a reduction of just under 1p per litre.

Annual Investment allowance

To help businesses to invest and grow, the temporary £1 million level of the Annual Investment Allowance has been extended to 31 March 2023.

What does it mean for my finances?

National insurance rise

  • One way to mitigate the impact of rising NIC’s for both employees and employers is to make pension contributions via salary sacrifice. By giving up part of your salary in exchange for a pension contribution made by your employer means neither you or your employer pay tax or NIC’s on that contribution.
  • Similarly, if you run your own company and have control over the level of salary, dividend or pension contribution you take, it’s important to review your options with a financial adviser to make the most of the changes.

Income tax change

Currently pension contributions benefit from tax relief at the basic rate of 20%. This means that for every £80 you pay in, HMRC will add another £20. Higher and additional rate taxpayers can claim up to an additional £20 or £25 via their tax return.

If the Chancellor changes the basic rate to 19% this will reduce the amount of tax relief that basic rate taxpayers receive on their contributions. Those that are considering paying additional sums into their pensions should consider doing so while the rate remains at 20%.

Similarly basic rate taxpayers considering taking taxable withdrawals from their pensions would pay 19% rather 20% after the change is implemented.

Impacts on Investment Markets

The Spring Statement largely confirmed what financial markets already know – inflation is set to be higher and economic growth lower in 2022 than earlier forecasts predicted.  Set against this, Sunak offered some further measures to help with the rising cost of living, including the National Insurance threshold change.  Initial chatter in the markets suggested the magnitude of measures was as expected and there were no surprises such as energy windfall taxes.  As such there was little standout reaction in the bond, equity, or currency markets.

Mr Sunak acknowledged the considerable economic uncertainty related to the war in Ukraine, commodity prices and supply chain disruptions post-COVID.  This uncertainty has led to volatility in equity markets during the first quarter, whilst bond markets have seen losses as Central Banks are expected to combat inflation by raising interest rates throughout the year.  These interest rate rises are unlikely to see returns on savings accounts move to levels above inflation. With much of the shorter-term bad news acknowledged and priced in we continue to have confidence in markets and especially in equities, for long-term investors.

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