2022’s Spring Budget In A Nut Shell

Tax
Employment Allowance
There will be a £1000 increase in Employment Allowance, meaning a rise from £4000 to £5000. This is good news for smaller businesses as it will help with their National Insurance Payments.

Income Tax
The basic rate of income tax is being reduced by 1% from 20% to 19% from April 2024. This is for people who earn between £12,571 and £50,270 year.  For example, people who earning around £25,000 will pay approximately £125 a year less in income tax. 

National Insurance Threshold Rise
The income point that people have to start paying National Insurance will be increased to £12,570 in July until 2026. According to the Chancellor, this is a tax saving for a typical employee of over £330 a year and should benefit around 30 million working people.

National Insurance Rate Increase
However, a planned 1.25% increase to NIC rates will still occur from 6 April 2022.
Self-employed people with profits between the small profits threshold (£6,725) and the lower profits limit can build National Insurance credits but won’t need to pay Class 2 NICs.

Dividend Tax
To help fund the costs of social care and the NHS, the Chancellor announced a 1.25% increase to dividend tax rates from April 2022. These will be included in next year’s Finance Bill. However, the £2000 dividend allowance will continue to be available and dividends received by ISAs will remain tax free.

Fuel, energy and living costs

The Office for Budget Responsibility (OBR) stated that due to rising prices and taxes, living standards are not likely to recover to the pre-pandemic level until 2024-25 and living standards are expected to drop by 2.2% this year. 

The OBR have also warned if wholesale gas prices remain at the current level, our energy bills are likely to rise by 40% again in October to take the typical household to £2,801 a year. 

Ofgem (the UK’s energy regulator) has already said bills will increase by 54% to £1,971 for a typical household from April.

However, to help:

• Fuel duty will be cut by 5p per litre until March 2023
• Homeowners installing energy efficiency devices such as solar panels, heat pumps or insulation will pay 0% VAT for five years
• Local authorities will receive £500m for the Household Support Fund from April to help vulnerable households with rising living costs

Growth 
Gross Domestic Product (GDP) measures all the activity of companies, governments and individuals in an economy; businesses can use this information to work out when it’s a good time to expand and hire people. The government use GDP to work out how much they can spend and how much they need to tax in a year.

Rising GDP can suggest the economy is doing well, jobs are being created and people may be receiving pay rises; which means more money is being spent throughout the nation – which is positive. If GDP is falling it mainly demonstrates a shrinking economy where businesses and individuals are likely to suffer.

Growth was initially predicted at 6%, but due to numerous considerations including the war in the Ukraine, global energy and food costs, and supply issues, the OBR now predict the economy will be reduced to 3.8% instead this year. 2023 will also see slower growth with the UK expected to grow 1.8% down from 2.1%.

Debt as a percentage of GDP is expected to fall from 83.5% in 2022/23 to 79.8% in 2026/27.

£83bn is expected to be spent on debt by the government in the next financial year — the highest on record.

Annual inflation rate was 6.2% in February and is likely to average out at 7.4% for the rest of 2022, although an 8.7% peak in the final quarter could occur, which would be a 40-year high.