SPRING STATEMENT: National Insurance threshold and cuts fuel duty – Industry reaction

24th March 2022

The Chancellor delivered a Spring Statement which will reduce fuel duty on petrol and diesel by 5p per litre for the next year and announces a £5 billion income tax cut from 2024.

The National Insurance starting thresholds will rise to £12,570 from July.  The Government says that the tax cut, worth over £6 billion, will benefit almost 30 million working people with a typical employee saving over £330 in the year from July. This means the UK now has some of the most generous tax thresholds in the world.

Reacting to the Chancellor’s Spring Statement StepChange CEO Phil Andrew said “The additional £500 million to the household support fund is of course welcome, but a drop in the ocean in terms of addressing the scale of need among the most financially vulnerable households in the light of the dramatic rise in the cost of living. We are now really worried that there will be an increase in the number of households who simply won’t be able to make ends meet.”

“The National Insurance threshold increase is welcome and will help some working households on the cusp of affordability. The future cut in income tax will also – eventually – help working households. However, in the here and now the growing cost of living pressures on working households on low incomes and non-working households isn’t being alleviated. It’s very difficult to see how those already struggling will avoid seeing their situation worsening.”

Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Today’s Spring Statement is a missed opportunity given the scale of the cost of living crisis facing households. While the increases in the National Insurance threshold and the Household Support Fund are welcome, they do not get nearly close enough to match the scale of the challenge.”

“Millions are already feeling the strain, with one in seven already behind on one or more bill. With inflation now at its highest level for 30 years and energy prices soaring, day-by-day and week-by-week, more people will be pushed into financial difficulty as the pressure to meet essential costs builds.”

“Debt charities will do everything we can to help people and small businesses that are struggling, but this alone will not be enough. The government needs to go much further by significantly uprating benefits and introducing dedicated help for people on the lowest incomes who cannot afford their monthly energy bills.”

CSA, Chief Executive Chris Leslie said “Rishi Sunak’s time as Chancellor has been more eventful than for most of his predecessors. These ‘Spring Statement’ policy announcements come as the Treasury shifts from pandemic mode and into cost-of-living mode, driven chiefly by the geopolitical disruption of Russia’s invasion of Ukraine.”

“With CPI inflation hitting 6.2% and still heading quickly upwards, this was never going to be a run-of-the-mill Treasury statistical reporting update. So here we have another ‘mini Budget’, with some strong hints about what will come in the November Budget-proper and ahead of a 2024 general election.”

“Sunak has stuck to his guns retaining the 1% ‘health and social care’ National Insurance rise due to come in April, but dampened its impact for the majority of the workforce with a fairly punchy increase in the NICs threshold to £12,570 – now fully aligned with the income tax starting threshold. The symbolic pointer of a 1p cut in the income tax basic rate may not help anyone in the short term before 2024, but it is a clear signal that the Chancellor wanted everyone to see and will no doubt be the focus of speculation in subsequent Budgets: will he go further? Will he bring it forward?”

“The timing of policy changes is a running theme in today’s Statement. Will it really be viable for the Chancellor to reinstitute the 5p fuel duty cut in twelve months’ time? Or is that likely to be extended again and again? As with the £20 pandemic uplift to Universal Credit, once a ‘giveaway’ has been received it is exceptionally hard to take it away again.”

“For those on low incomes or struggling to make ends meet, there were few direct policy measures to counteract the potential 10% increase in the cost of living this coming year. Yes, the Chancellor gave more to local authorities to target support through the ‘household support fund’. But that is not the same as direct help via the means-tested benefit system. Benefits are due to rise by 3.1% in a few months’ time, which is significantly less than inflation. We can therefore expect many more income & expenditure assessments heading more towards deficit household budgets and further pressures for debt forbearance as a result. The Office for Budget Responsibility says that 2022/23 will see the “biggest fall in living standards in any financial year since the ONS records began in 1956/57”. That single fact will frame most policy debates over the coming twelve months.”

“There were other relevant announcements too. The CSA is naturally eager for the Government to support our member firms with their learning and development needs, to raise skills and professional standards and help our sector comply with regulatory requirements. So the announcement by the Chancellor that they will review the existing incentives and tax system for skills investment – including the operation of the Apprenticeship Levy – suggests that further incentives for businesses to invest in training may be on the horizon. We expect further news of this in the November Budget and will be urging Ministers to enhance the existing apprenticeship system.”

“There were also useful changes for business, including the increase in Employment Allowance and the 50% discount on approved software for firms in the ‘Help To Grow Digital’ scheme. Many of the Chancellor’s tax giveaways were funded by a significant accounting change that will hit student loan changes to the fee cap and loan terms – expect more coverage of this as the details are digested. Public service budgets will also come under significant pressure again as inflation bites – and expect pay rise pressures to become more vocal.”

“Overall the Chancellor managed to respond to current events, framing his decisions as a response to the Ukraine crisis and subsequent global energy crunch. There are clearly limits to his ability to act. And in many ways the Spring Statement was a foretaste of more political choices to come as we near an election. But there are measures that will make a real difference for consumers – especially middle-income earners – and the turbulence the Chancellor is attempting to weather is not likely to subside any time soon.”

Jayadeep Nair, Chief Product & Marketing Officer, Equifax UK, said “The cost-of-living crisis is unravelling at an alarming pace and millions of families across the UK were hoping to hear the Chancellor offer some relief in today’s Spring Statement. After two years of generous and far-reaching Government support in response to the pandemic, Rishi Sunak was left with few cards left to play, and his three-part Tax Plan offered only partial respite for consumers who are facing inflation at its highest level in 30 years.”

“Those with a car to fill up, or those coming off a fixed tariff with a utility company, know only too well how eye-watering the energy price rises have been, and the Chancellor used today’s budget to confirm three headline fiscal measures to support with energy price pressure. A 5p per litre cut to fuel duty will take some of the sting out of pump prices, as will a Brexit-linked dropping of VAT on energy efficiency installations. Doubling the household support fund that local authorities are able to offer vulnerable residents, from £500m to £1bn, will also go a long way to help the rapidly growing number of people that are having to choose between heating and eating.”

“Equifax data shows that arrears and defaults in the consumer credit market are already climbing, and while today’s measures will help to buy time for thousands of families, they won’t stop thousands more from entering vulnerable financial situations. Four million1 people are already using credit to pay for essential goods and services. Credit can help smooth the way through the crisis for some, but lenders will have to go even further to protect customers, speak to them often to spot signs of vulnerability, and ensure that innovation keeps options on the table for sub prime borrowers as well as those better equipped to ride out the economic rollercoaster we are currently on.”

Paul Burgess, CEO, Startline Motor Finance, said “The chancellor has made some effort in his statement to stave off the effects of the rapidly rising cost of living but these are largely marginal. Reducing fuel duty by 5 pence when petrol and diesel has risen 30-40 pence per litre over the last year is only going to bring slight relief while the NI alignment means just a few hundred pounds and the cut in income tax won’t arrive for another two years.”

“Whilst recognising the human tragedy unfolding in Ukraine, the underlying question for the used car sector in general is whether low growth, high inflation – now forecast to beat 7% – and other factors likely to impact on consumer confidence such as the situation in Ukraine are going to have a negative effect on sales and values. Our view is that the market is sufficiently buoyant and stock in such short supply that it will remain relatively strong.”

Mark Supperstone, Managing Partner at ReSolve said “We are pleased to see the Chancellor has pledged to support businesses by cutting tax rates on business investment, increasing the Employment Allowance to £5,000, and reforming generosity of tax credits on private firms’ R&D spend. This comes at a time when businesses are still facing many challenges due to Covid and inflationary pressures. Time will tell whether these steps alone are enough to help businesses overcome the current challenges.”

Tommaso Aquilante, UK Lead Economist at Dun & Bradstreet said “As inflation soars, the Chancellor was under immense pressure to introduce fiscal measures that could help alleviate the impact of rising living. Add into the mix that the public debt to GDP ratio is unusually high for the country’s standards (higher than 100%) and the ongoing Ukraine-Russia crisis continues to impact on much of Europe, it was always going to be challenging to address all concerns with today’s announcement. Uncertainty for businesses and Governments continues to dominate.”

“Although the Bank of England raised interest rates to 0.75%, inflation in the short run will almost certainly be higher than first anticipated. Higher prices will impact how consumers tighten budgets which can have a knock-on effect on the cash flow of businesses. While there is only a certain amount that government policy can do to tackle the surge in prices, the proposed mix of tax cuts and support measures, seem to go in the right direction. However, as the supply chain crisis also rages onward and fuel costs impact already over-burdened bottom lines, today’s Budget might be a bitter pill to swallow for some.”

Alex Hasty, Director at comparethemarket.com said “The Chancellor’s fuel duty cut is a step in the right direction but the rising cost of living is still rendering driving unaffordable for many. In practice, this cut will only save drivers around £3.30 a tank*. Today’s Spring Statement was a missed opportunity to reduce the costs for drivers further. It is disappointing the Chancellor did not take action to reduce the burden of insurance premium tax. While the Government claims this tax targets insurers, the reality is that it penalises drivers, especially young people who pay an average of £123 in insurance premium tax. At a time when so many are struggling financially, the current rate of insurance premium tax significantly impacts the cost of driving and could price some people out of car ownership entirely. If you live in a city, you may be able to get by without a car, but for those in more rural areas, cars are essential to get to work, take children to school, or see friends and family.”

Dr Gordon Fletcher, retail and business expert at the University of Salford Business School said “Reductions in the fuel duty and possibly in income tax as well as an increase in the NIC threshold appear to give some relief to workers. But with the prospect of inflation climbing beyond 7% this year and volatility in the fuel supply chain these advantages may quickly evaporate.”

“As the Spring Statement was being prepared there must have been a point when Sunak considered what the next day’s headlines would say.”

“Would this be about the cost of living crisis, post-COVID recovery, a new green economy or even a mini-war budget? What was offered up is in the end was a mixed bag that lightly promised on the first, gave nods to the others and leaned a bit too heavily on the last.”

“These are changes that have little impact for pensioners or low income families in the lead up to next Winter. And reducing contributions in reduces government’s ability to service debt or support social services.”

“A slight reduction in the VAT for heat pumps also offers no hope for these groups – although it might be bring enough appeal for making the second home a bit greener. Placing the blame on the impact of Russian sanctions may ring the government’s bell in showing international leadership but the many economic challenges we are now facing were evident long before tanks started rolling towards Kyiv.”