Spring Statement 2022: Bloom or Bust?
In today’s Spring Statement from the government, what’s blooming and what’s a bust for landlords?
So, it’s been five months since the Autumn budget which saw rises in inflation and National Insurance. Even Martin Lewis, renowned money saving expert, has declared that the government needs to step up and support people through a time of uncertainty and unprecedented rises in the cost of living.
The October 2021 budget promised investment into a high-skilled economy, backing business and praise for imagination and drive, help for families and provision of tools to build better lives. And of course, the inevitable talk of levelling up.
Chancellor Rishi Sunak stressed then that the Autumn budget didn’t draw a line under Covid but was designed to welcome a new age of optimism, and build a stronger economy for the future.
But has that been the case?
In the months following we’ve seen a list of rather unsavoury financial events, with a rise in The Bank of England base rates and huge energy hikes – arguably scarier than the Halloween timing of the last budget.
What was announced in today’s Spring Statement?
Sunak has unveiled an economic programme, having been urged to help alleviate the cost-of-living crisis after prices hit 6.2% in February – the fastest rise over 12 months for 30 years.
To cope with rising costs in fuel, energy, food – the cost of living in general, experts say that many people will have to cut their spending elsewhere (food, entertainment, clothes etc,) to meet the huge rise in bills.
The war in Ukraine is also predicted to push some of these costs higher as problems emerge in fuel and food supply chains.
Sunak today said that inflation is set to rise further and could reach 7.4% and warned that many people will have to choose between heating and eating.
The cuts designed to help alleviate ever rising costs include:
- Fuel duty cut. As of 6pm this evening, there will be a 5p cut to fuel duty. The RAC says this cut could reduce the cost of filling a typical 55L family car by £3.30
- NI threshold increased. Starting in July, the threshold for paying National Insurance will increase by £3,000. You will be able to earn £12,570 a year without paying any income tax or National Insurance
- Income tax cut. The basic rate of income tax will be cut by 1p in the pound by 2024 (from 20p to 19p). Income tax has only been cut twice in the last 20 years, which ‘shows how hard it is to do’, according to the Chancellor
He added that Covid and the Ukraine war had made that cut harder and that it would be ‘irresponsible to meet the ambition of cutting tax – this year.’ He said the planned income tax cut would be possible because the government had been ‘responsible with the public.’
Inflation this year is going to be much higher than previously forecast.
In October 2021, the Office for Budget Responsibility (OBR) forecast inflation of 4% in 2022 (already double the Bank of England’s 2% target). But today it was announced that the OBR estimated inflation would average 7.4% this year. Sunak admitted this would mean ‘an extremely painful squeeze on families.’
Rachel Reeves, the shadow chancellor, responded to Sunak’s budget statement and said Sunak could have put a windfall tax on energy companies, or properly cut his national insurance increase, but he didn’t.
She added that Sunak talks about security – ‘but his choices are making the cost-of-living crisis worse, not better, for people.’
The Spring Statement published on the treasury’s website says:
Spring Statement 2022 takes place following the unprovoked, premeditated attack Vladimir Putin launched on Ukraine. The invasion has created significant uncertainty in the global economy, particularly in energy markets. The sanctions and strong response by the UK and its allies are vital in supporting the Ukrainian people, but these decisions will inevitably have an adverse effect on the UK economy and other economies too.
The higher than expected global energy and goods prices have already led to an unavoidable increase in the cost of living in the UK. There is also more uncertainty than usual around the Office for Budget Responsibility’s (OBR) spring economic and fiscal forecast.
You will still need to tighten your belt
So do the Chancellor’s measures go far enough? Labour and many commentators claim that the proposals won’t have a significant impact on the cost-of-living crisis. Martin Lewis has said this is ‘not going to lift that many people out of the mire’ and Unite general secretary Sharon Graham accused the Chancellor of merely ‘tinkering around the edges’.
The fact remains that while there are some savings to be had, they are not comparable to the extreme rises we have seen over the last few months. And, with the OBR predicting much higher inflation than originally thought, you still need to look to tighten your belt over the rest of the year, in order to weather the storm.
Don’t forget, if you’re worried about saving money as the cost-of-living crisis bites, you can book a call with one of our advisors to find out more about our free services and how we can keep you compliant.
