Smoke and mirrors spring statement

Picture of a tree covered in snow for my post about the Spring Statement

Poorest people frozen out by the Spring Statement

I listened to yesterday’s Spring Statement, aka a mini Budget, so you don’t have to. 

I hope it’s done a lot for Rishi Sunak’s career, because it sure as hell didn’t do much for low earners and the most vulnerable, faced with monstrous energy bills, the highest inflation for 30 years, up to 6.2% a year and rising, and the biggest fall in living standards since the 1950s. I described rising living costs as a horror story at the start of February – and that was before the impact of the war in Ukraine.

Instead there was a lot of smoke and mirrors, giving with one hand and taking away with the other, a triumph of magician’s misdirection. 

So here’s what the Chancellor produced from his top hat:

Cut in fuel duty

Prices at the pump have gone crazy, so Rishi has cut fuel duty by 5p a litre.

Whoop de doo.

With fuel prices at the highest levels ever seen, up to 167.3p a litre for petrol and 179.72p a litre for diesel according to the RAC, that might take prices down to ooooh what they were last week. Should save £2 to £3 on filling up a family car, which sounds like a drop in the ocean to me – plus it only benefits people able to afford cars.

Cutting the cost of energy efficiency materials

The Chancellor has removed 5% VAT from energy efficiency materials that weren’t already VAT free, crediting Brexit for the chance to do so.

Again, whoop de doo.

Yes, it is eminently sensible and very green to improve energy efficiency at home, whacking in extra insulation, installing heat pumps and so on. Yes, it should help cut energy bills – but only if you can afford to make those changes. 

I’m not sure where those forced to choose between starving and freezing are going to find the money to install solar panels, even with the removal of 5% VAT. 

Bumping up the Household Support Fund

Rishi reckons local councils are best placed to support the most vulnerable households, so he has doubled the Household Support Fund announced last October, up by £500 million to £1 billion.

This is meant to provide small grants towards essentials such as food, clothing and utilities. 

I’m glad that more money is being made available, but do wonder how people can get their hands on it. It sounds good, but no one can plan based on a grant that may or may not be given, for an unknown amount, unlike a predictable increase in benefits. 

Increasing the National Insurance threshold.

This was the really big rabbit that Rishi whipped out of the hat.

He insisted on ploughing ahead with the 1.25 percentage point increase to National Insurance contributions (NICs) from April 6, earmarked to fund health and social care. 

Instead, he has pushed up the point when people start paying National Insurance by “the full £3,000”, to £12,570 from July, matching the same point when people start paying basic-rate income tax.

The quotes are because the National Insurance threshold was already due to go up from £9,568 to £9,880 from April, so the increase is a less generous £2,690 more than expected.

I think raising the threshold is a good plan. It will benefit lower earners, able to hang onto more of their salary or profits, while those who rake in more will pay more. I’m also all in favour of anything that simplifies the tax system. Starting income tax and National Insurance at the same point will make life easier. 

The crucial income level is £34,372 a year according to number crunching by Deloitte.

If you earn less than this, then after all the smoke and mirrors of increasing NICs but pushing up the threshold, you’ll actually pay less NICs in 2022/23 than you did this year.

Higher earners will also benefit because their extra NICs bill won’t be quite so high – an employee on £60,000 for example, will pay an extra £442 in NICs rather than the £711 expected increase.

Plus, people who won’t pay NICs after the threshold rises to £12,570 don’t need to worry that they will now miss out on certain benefits, such as qualifying years for the State Pension.

Currently, if you earn more than the ‘lower earnings limit’, you still qualify – and that limit is only increasing from £6,240 to £6,396 a year.

Dangling the carrot of lower income tax

Rishi is so keen to be seen as a tax-cutting chancellor, that he promised to cut basic rate of income tax from 20% to 19% – but only in 2024. 

Yet more smoke and mirrors. Increase National Insurance by 1.25 percentage points in April, then decrease basic rate tax by one percentage point in a couple of years’ time. 

Trouble is, cutting income tax in 2022 does zip all for anyone faced with magicking hundreds of pounds out of thin air to pay energy bills now, and higher energy bills from next week, and even higher energy bills from October. 

Who misses out in the Spring Statement

Fuel duty and energy efficiency measures – a small saving for people who can afford them.

Increasing the National Insurance threshold – good for employees, the self-employed and employers.

But what about people who don’t or can’t work, and those who don’t earn enough to pay National Insurance or income tax anyway? 

The disabled, carers, pensioners, anyone on a fixed income terrified about rising bills?

People on Universal Credit who have already been stripped of £1,000 a year, after Rishi removed the £20 a week added during Covid?

Rishi did nothing about cutting VAT on energy bills, or increasing pensions and benefits. Pensions and benefits are only going up by 3.1%, based on inflation last October, not current higher rates. This means millions of the poorest people stand to lose another £500, eaten away by rising inflation. 

The Chancellor might point to the doubling of the Household Support fund doled out by councils. 

But here’s the thing. With the rise in the energy price cap from April, more than a quarter of homes in England will be plunged into fuel poverty, paying more than 10% of their income on energy bills. That’s more than 15 million people.

The extra £500 million split 15 million ways works out only around £33 a head, when the average fuel bill on the price cap is shooting up by almost £700. Even with the £150 council tax rebate for bands A to D, and the £200 loan promised in October, it’s still not going to touch the sides. £33 won’t even cover the increase in energy bills for a single month.

Rishi played politics by dumping the blame for rising costs on Ukraine, braying about Brexit benefits when cutting VAT, and trumpeting future income tax charges just before an expected election. That does nothing to help the most vulnerable in our society.

Now – over to you. Any thoughts on the Spring Statement? How will it affect you? Do share in the comments, I’d love to hear.

 

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4 Comments

  1. 24th March 2022 / 2:20 pm

    I think that the prices of energy and fuel will keep going up due to the war and the sanctions imposed on Russia. Pensioners, disabled people and people working for the minimum pay per hour will get poorer that’s for sure.

  2. 24th March 2022 / 6:57 pm

    Quite right.
    Benefits willl go up next April to reflect all the curent price increases, but next April is too late! Sunak could easily have said that all benefits will go up 8% in April and that the increase next year will be lower as a result of getting this inflation matching rise earlier. It would not have cost the treasury a fortune.

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