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The Spring Budget: Industry experts react

Following on from the announcement of the 2022 Spring Budget, delivered in parliament this afternoon, we’ve compiled a round-up of industry expert reactions to the budget. 

Profile photo of Jake BernardiJake Bernardi, Wealth Planner at Succession Wealth

For a chancellor with very few levers to pull, he did a good job. It doesn’t feel like the right moment for major tax reform, so to tinker around the edges is not unwise.

Capital gains is the elephant in the room. Tax relief on pension contributions for higher earners and inheritance tax reform were also notably absent, and likely to come under scrutiny.

 

 

Profile photo of Les Cameron

Les Cameron, Savings Expert at M&G Wealth

At just under 58p per litre, fuel duty is currently accounting for around a third of your fuel bill and VAT takes it up to over half the cost of filling up your tank. As a key expense for many it’s positive news that the government has acted in this area when many people are struggling.

While there may well be some criticism of the measure for being inconsistent with the strive for “net zero”, the government and other organisations will still have their eyes firmly on helping the planet, as evidenced by the Chancellor’s announcement of the zero rate for VAT on solar panels.

The National Insurance hike was widely criticised as it would have a disproportionate effect on lower earners. The Chancellor has more than made up for the hike in rates with the increased threshold – seeing most low and middle earners having an effective tax cut – meaning more money for those struggling with the cost of living crisis.

 

Nathan Wallis, Chief of Staff at Wesleyan Group

The Chancellor’s announcements today go some way to addressing the very real challenges being faced in households across the UK but are unlikely to go far enough. Some of our customers are lying awake at night, worried about the impacts of the cost-of-living crisis and today’s announcement may ease the burden but won’t make it go away.

 

Profile photo of Katharine ArthurKatherine Arthur, Head of Private Client at Haysmacintyre

The Chancellor has made a strong statement today, declaring the biggest cut to taxes in a quarter of a century. But against a backdrop of rising inflation, the increase to National Insurance, and frozen thresholds for the capital taxes, is the Government simply moving the deckchairs?

The increase to National Insurance will still go ahead next month. And while the increase to the National Insurance threshold by £3,000 will be welcomed by many, until it takes effect in July people will still have to pay the additional 1.25% of the National Insurance/Health and Social Care Levy. Although championed as a tax cut, the threshold increase at the most will simply cancel out the effects of the National Insurance increase for the lower paid – coupled with a cut to income tax that is still two years away, it is unclear whether people will actually be better off as a result of this Spring Statement.

“Inheritance Tax and Capital Gains Tax are now delivering record receipts for HMRC – more and more people will find themselves having to pay these taxes as inflation skyrockets and the nil-rate bands remain frozen until 2026. Over the next four years, we will see the number of people paying Inheritance Tax and Capital Gains Tax only continue to rise.

 

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Steven Cameron, Pensions Director at Aegon

The Chancellor’s decision to increase the lower threshold of earnings on which employees pay National Insurance by £3,000 to £12,570 will be welcomed by many as helping mitigate the cost of living squeeze. There had been calls for the Government to defer the increase of 1.25% in NI, but Rishi clearly was not prepared to do so and instead has opted to make a major increase in the NI threshold. This will reduce the impact of the 1.25% increase for all, and will take anyone earning under £12,570 out of paying any NI contributions.

However, increasing the threshold has longer term ramifications. Setting aside the 1.25% increase, which will be ringfenced to pay for social care and NHS support, raising the threshold will reduce the amount being collected in NI from today’s workers to pay for today’s state pensions. This will happen not just in the coming year but also in all future years, storing up longer term challenges for the funding of state pensions which are paid for out of NI on a pay as you go basis.  

There have been calls for the planned increase in state pension age to 67 by 2028 to be deferred, but having lower NI receipts will make that less affordable. Similarly, lower NI receipts could once again call into question the ongoing affordability of maintaining the state pension triple lock beyond this Parliament. Based on current predictions state pensioners could receive a bumper 8% plus increase in April 2023, which will take into account September’s projected inflation figure.

Furthermore, at present,  those above state pension age don’t pay NI on earned income so will not benefit from the threshold increase.

The government has been facing a barrage of calls to ease the cost of living squeeze, including to defer April’s 1.25% National Insurance increase for individuals and employers. But the increase in NI is going ahead at a time when prices are rising at the fastest rate for three decades, with the squeeze on income expected to worsen in the coming months. Employers will also face increased wage costs. 

However, the increase in NI is to provide further support for the NHS and to fund the government’s share of its new social care proposals. After the House of Lords rejected the draft Social Care funding Bill, finalising the deal must be an immediate priority for the Government.

Despite all the many financial challenges we face as a nation, the government can’t ignore the need to prop up the NHS and implement a new social care deal with an appropriate cap on care costs. The health impact of the pandemic has shown just how important it is to have a high quality, properly funded care system, and this will have to be paid for.

 

Matthew Connell, Director of Policy and Public Affairs at the Personal Finance Society

For far too long a solution to fix the care funding crisis was kicked into the long grass resulting in far too many people’s lifetime savings being obliterated by their care needs.

“The care funding requirements made many families whose loved ones had spent a lifetime carefully saving to pass on a legacy think ‘what was the point?’ when they saw the cash quickly disappear to pay for care.

National Insurance already provided protection for unemployment, the state pension and healthcare so it was clearly identified as the simplest and quickest way for social care to be funded.

The Chancellor has taken steps to offset the impact of National Insurance Contributions from next month for lower earners, by increasing the National Insurance threshold to £12,750 and an income tax cut of 1p in 2024.

The Chancellor has addressed a key weakness of the care funding reforms, but in doing so, he has made the tax and benefit system more complicated.

This underlines the fact that lower earners need help and advice on their finances and benefits more than ever before.

 

Profile photo of Jason MountfordJason Mountford, Financial Planning Expert at Irwin Mitchell

As was widely predicted, fuel duty has been cut by 5p per litre, from 6pm tonight until March 2023. For the majority of motorists, this is unlikely to make a major difference to their household budget. On an average car holding 50 litres of fuel, a 5p reduction on petrol costing £1.70 per litre will reduce the cost of a tank by £2.50. This will mean a reduction in cost for most motorists of less than £100 per year.

Compounding the underwhelming nature of the announcement is research from the New Economics Foundation, which suggests that the wealthiest 20% of households spend almost 5 times as much on fuel as the poorest 20%.

There were no further announcements to assist households with the rapidly increasing cost of energy. Instead, The Chancellor has announced the removal of VAT for energy efficient additions made by homeowners, such as solar panels and heat pumps.

Sunak announced that this would save homeowners £1,000 on average, however given that the average cost to install home solar panels is £4,800, it is another measure that is unlikely to impact the hardest hit by the energy crisis.

To calls from the gallery of “Is that it?” there was an announcement for lower income earners.

Rishi Sunak stated that from July, the threshold for paying National Insurance Contributions will be aligned with the Personal Allowance. This increases the minimum threshold by £3,000 per year and will save lower income earners up to £330 per year.

£330 is significantly less than the £1,300 that the average energy bill is expected to rise by this year, but it is at least a measure that is aimed towards the lowest income earners in the UK.

Is Tinkering Enough? The broad takeaway for individuals is that these measures may take the edge off the financial pain of the cost of living squeeze, but it will be a long way off removing the pain entirely. Most households will notice little difference to their monthly outgoings as a result of the measure released today.

Perhaps as a way to soften the reception, the Chancellor also dropped a surprise announcement that the Basic Rate of tax will be reducing from 20% down to 19%, but not until 2024.

 

James Forrester, Managing director of Barrows and Forrester

Such a bold move on income tax is of course welcome, but let’s not forget that this is somewhat diminished by an increase in both personal and employer national insurance, as well as the impending hike in corporation tax.

This will cause further problems for homeowners across the nation who will have seen a sharp increase in the cost of running their home already this year, with both an increase in interest rates, rising energy costs and a jump in fuel prices all bringing additional financial strain.

So while there’s been no real property initiatives announced today other than 0% VAT on energy saving initiatives, other announcements such as the cut in fuel duty and the increase to the household support fund will, at least, help reduce this overall cost of living.

This should provide some small amount of breathing room for those that are particularly hard pressed at present, although it’s unlikely to solve the issue completely.

 

Profile photo of Tim BennettTim Bennett, Head of Education at Killik & Co 

A fixation on Rishi Sunak’s increase in the national insurance threshold may distract attention from the potential impact of his baked-in “stealth taxes”. For example if CPI inflation remains at, or climbs above, today’s 6.2% the value of the fixed allowances he has already frozen over the next four years will be reduced substantially. To paraphrase Adam Kay, “This is going to hurt.”

 

 

 

Jason Hollands, Managing Director of Investing at Bestinvest

In his Spring Statement today, the Chancellor sought both to partially alleviate the squeeze to the cost of living from rampant inflation as well as to reassert the Conservatives’ traditional tax-cutting credentials.

The 5p cut to fuel duty will be welcomed by motorists, but given the scale of the surge in petrol prices over the last year, this is like applying a plaster to a major wound. The announcement that the National Insurance and Income Tax thresholds will be aligned at £12,570 in July is substantial, both simplifying the tax system and offsetting the planned NI increase for many people. Additionally, the Chancellor dangled the carrot of a penny cut in the basic rate of income tax to 19% for 2024.

However, while considering these measures and the Chancellor’s repositioning as tax-cutter, it is important not to forget that most personal tax allowances will be frozen until at least 2026. When inflation is high and real wages are rising, this means that a great many people can expect to have a higher tax burden over the coming years than they do now.

 

Profile photo of Ben Alcock FCIIBen Alcock, Chartered Financial Planner at Continuum

The £3,000 increase to the National Insurance threshold will be a welcome relief for many lower-earning households and help them mitigate rising living costs.

The 5p cut to fuel duty and the increase to the household support fund will also help many households struggling with the increased cost of living but will do little for the many pensioners that may be particularly vulnerable to inflation.

With the suspension of the pensions triple lock, many industry commentators were hoping for additional measures such as a temporary increase to the State Pension rate to help pensioners with the unprecedented rise in their living costs.

 

 

 

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