Temporary National Insurance rises confirmed, but threshold also rises
Last September, the Government announced that from April this year, National Insurance contributions would rise by 1.25% temporarily, before the introduction of a separate Health and Social Care Levy in 2023.
The Chancellor had faced calls from across the political spectrum to put this rise on hold or even scrap it. He didn’t. Instead he announced an increase to the threshold at which people start paying National Insurance on their earnings or pension income. From July this year, it will rise by £3,000 to £12,570, bringing it into line with the basic-rate tax threshold in England and Wales. This should particularly benefit lower earners.
Basic-rate income tax rate to be cut… by 2024
With thresholds for basic-rate and higher-rate taxpayers in England and Wales frozen at £12,570 and £50,270 until 2026, there’s been no opportunity to benefit from incremental increases in line with inflation. Plus, given that we’re living in a period of soaring inflation, in real terms the value of many people’s income has been falling.
While there aren’t going to be any immediate tax cuts, the Chancellor did announce that the basic rate of income tax would be cut by 1% by 2024, from 20p in the pound to 19p. He said that this was part of a much wider tax plan, the details of which will be announced later in the year.
Please be aware that if you live in Scotland, bands and rates of tax are different. You can find out more about these here.
Fuel duty cut
One of the most widely expected measures was confirmed – a cut in fuel duty by 5% from 6pm tonight (23 March) until March 2023. The RAC has said that this will take £3.30 off the cost of a tank of fuel for a typical family car.
VAT removed on energy-saving materials for homeowners
For those looking to make their homes more energy-efficient to tackle rising energy bills, there was good news in the form of no VAT for the next five years when installing things like solar panels, insulation and heat pumps.
Support for smaller businesses
Retail, hospitality and leisure companies, which were hit hard by lockdowns during the pandemic, will get a 50% discount on their business rates, up to £110,000. And small businesses will get further support in the form of an increase in the Employment Allowance to £5,000. This means that eligible businesses can reduce their annual National Insurance liability by up to £5,000.
Our view on the Spring Statement
Commenting on the Chancellor’s announcements, our financial planning expert Shona Lowe said:
“The measures announced by the Chancellor today should help to alleviate some of the financial strain households and small businesses across the UK are currently facing. But the cost of living crisis is likely to get worse in the months to come so we will have to wait and see.
“More and more are starting to feel the squeeze, as inflation continues to rise, while anyone with savings held in cash is seeing the value of their money erode at pace.
“While we welcome the 1p reduction in the basic rate of income tax, savers still need to take steps to reduce the impact of inflation. Moving cash into arrangements where the returns could be closer to the inflation rate could be an effective way for people to make the most of their savings this year, while speaking to a professional adviser will help savers ensure they are maximising those returns, benefiting them both now and in the future.”
We’re here to help
If you have any questions about how what’s been announced may affect you, get in touch with your abrdn financial planner. They’ll be happy to help.
The information in this article should not be regarded as financial advice. Information is based on our understanding in March 2022. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. The value of investments can go down as well as up, and could be worth less than was paid in.