Everything you need to know about the 2022 spring statement
Against the backdrop of the continuing war in Ukraine, the chancellor has delivered his spring statement.
The war has contributed to uncertainty in the global economy, with the Office for Budget Responsibility (OBR) saying that, “given the unfolding situation in Ukraine, there is unusually high uncertainty around the outlook”.
Disruptions in global supply chains and the Ukraine war have led the OBR to revise downwards their forecast for growth over the next five years. The OBR now forecasts GDP to rise by 3.8% in 2022, down from its 6% growth forecast in last October’s economic and fiscal outlook.
The OBR then forecasts growth of 1.8% in 2023, 2.1% in 2024, 1.8% in 2025, and 1.7% in 2026.
Another current factor underpinning Rishi Sunak’s speech is rising inflation. According to the Office for National Statistics (ONS), inflation in February reached a 30-year high of 6.2%.
As the economic consequences of the Ukraine war continue to unfold, the OBR expects inflation to average 7.4% this year, with a further rise in energy costs in the autumn set to contribute further to the so-called “cost of living crisis”.
The chancellor tackled this issue first.
Fuel duty to be cut by 5p a litre until March 2023
As well as the £9 billion plan to help households pay around half of the April energy cap increase, unveiled by the chancellor in February, fuel duty will be cut for only the second time in 20 years. Sunak cut the duty by 5p a litre until March 2023, calling it the “biggest cut to all fuel duty rates ever”. The reduction in duty will come into effect from 6 pm on 23 March 2022. According to the Treasury, this cut represents a saving worth around £100 for the average car driver, £200 for the average van driver, and £1,500 for the average haulier, when compared with uprating fuel duty in 2022/23.Cut in VAT on home energy installation
To further encourage households to invest in energy-efficient measures, and to keep energy costs down, Sunak announced an extension to the VAT relief available for the installation of energy-saving materials. Taking advantage of Brexit freedoms, the chancellor announced that homeowners looking to install measures such as heat pumps or solar panels won’t pay any VAT (except for households in Northern Ireland). The Treasury say that a typical family having rooftop solar panels installed will save more than £1,000 in total on installation, and then £300 a year on their energy bills.A three-step tax plan for the rest of the parliament
Arguing that it’s “only Conservatives [who] can be trusted with taxpayers’ money”, Sunak unveiled a new three-point tax plan for the remainder of this parliament. Calling it “a principled approach to cutting taxes”, the chancellor outlined the “direction of travel” of how he intends to reduce the tax burden responsibly and sustainably.- Help families with the cost of living
- Create conditions by encouraging higher growth
- The temporary £1 million level of the Annual Investment Allowance will be extended until 31 March 2023.
- The business rates multiplier will be frozen in 2022/23.
- A new temporary 50% relief in Business Rates for eligible retail, hospitality, and leisure businesses. It means the average pub, with a rateable value of £21,000, will save £5,200. The average convenience store, with a rateable value of £28,500, will save £7,000.
- Business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage will be brought forward to April 2022.
- From April 2023, all cloud-computing costs associated with R&D, including storage, will qualify for R&D relief.
- The Employment Allowance will increase to £5,000. This means eligible employers will be able to reduce their employer NICs bills by up to £5,000 a year, and that businesses will be able to employ four full-time employees on the National Living Wage without paying employer NICs.
- Proceeds of growth shared fairly