The Chancellor delivered his Spring Statement on 23 March and as expected, it highlighted the significant cost pressures that households and businesses are going to face for the foreseeable future. The main points to note from the Statement are summarised below:

  • NI and Income Tax: The NI threshold is to be lifted from £9600 to £12,570 from July. The basic rate of income tax will be cut from 20p in the pound to 19p, although this won’t actually happen until 2024.
  • Economic Growth: The Office for Budget Responsibility forecasts growth of 3.8% in 2022, down from its previous estimate of 6% in its October forecast. The OBR also expects inflation to reach a 40-year high of 8.7% in the final quarter of 2022.
  • Household Support Fund: Local authorities will get an additional £500 million for the HSF from April, creating a £1 billion fund to help vulnerable households with the increased cost of living.
  • Energy prices: The OBR is forecasting that energy bills will increase by 40% in October, if the wholesale cost of gas remains at its current level.
  • Motorists: Fuel duty will be cut by 5p per litre until March 2023.
  • Debt: As a percentage of GDP, debt is expected to fall from 83.5% of GDP in 2022/23 to 79.8% in 2026/27.
  • Energy efficient homes: VAT on energy efficient materials such as solar panels and heat pumps will be cut from 5% to zero for homeowners wishing to install such items.

Pegasus View

There is no escaping the fact that there are some pretty bleak numbers in the latest Spring Statement. While the lifting of the NI threshold is undoubtably a positive move for millions of people, we are still faced with the biggest fall in living standards since records began in 1956. The forecasts quoted by the Chancellor also do not account for the full impact of the war in Ukraine, so things are likely become more challenging before they get better.

The rising cost of living is likely to be a major issue for at least the remainder of 2022, which makes it even more important that the government follows through with its aims in the Levelling Up White Paper that was published last month. Continued investment is needed in housing, infrastructure, employment sites etc. if the economy is to continue its recovery following the pandemic and ensure that unemployment doesn’t start to rise at a time when labour market growth is more important than ever.