Spring Statement support: is it enough?

This year's Spring Statement came against the backdrop of a cost of living crisis, with Russia's invasion of Ukraine and the ongoing effects of the COVID-19 pandemic creating a multitude of economic pressures.

Although some measures were outlined to mitigate these challenges, experts have criticised Chancellor Rishi Sunak's address, saying it did not go far enough.

The Spring Statement saw the Chancellor summarise the economic outlook by the Office for Budget Responsibility (OBR), and announce immediate support measures as well as future policies.

Sunak's address in Parliament was shadowed by an announcement that inflation had hit 6.2% after continued bottlenecks in the global supply of goods as well as soaring fuel and energy prices.

What did the Chancellor say in the Spring Statement?

Sunak kicked off his Statement with an economic outlook from the OBR, which expects inflation to peak at 8.7% at the end of 2022, to recover at 1.5% a full year later.

GDP is forecast to grow by 3.8%, although this is lower than the 6% growth the OBR predicted in October 2021.

It will then grow by 1.8% in 2023, and 2.1%, 1.8% and 1.7% in the following three years.

Sunak then moved onto support measures, including an alignment of the NICs and income tax threshold, a zero rate of VAT for energy-saving materials and a cut in fuel duty.

The employment allowance will also be expanded from £4,000 to £5,000.

Sunak also announced the basic rate of income tax would be cut by 20% to 19% from April 2024, while business investment taxes and R&D tax relief will be reformed in the future.

Did the Statement measure up?

Since the Statement, the Chancellor has been on social media to advertise how the Government's policies are "helping with the cost of living".

However, economic analysts had few kind words for the announcements.

The Resolution Foundation, a left of centre think tank, gave one of the most damning reviews of Sunak's Spring Statement, with its chief executive, Torsten Bell, saying:

"In the face of a cost of living crisis, the Chancellor promised support with the cost of living today, and tax cuts tomorrow.

"Significant measures were announced on both counts, but the policies do not measure up to the rhetoric."

According to the Foundation's analysis, families will lose 4% of their income (£1,100), while the poorest quarter of households will lose 6% even when taking Sunak's policy changes into account.

Paul Johnson, director of the Institute for Fiscal Studies, likewise lambasted the Government, this time for doing "nothing more for those dependent on benefits".

Benefits and state pensions are set to rise by 3.1% in April 2022, but the OBR expects inflation and cost of living to peak at 8.7% by the end of the year.

Meanwhile, the British Chambers of Commerce (BCC) said the Statement fell short of the support businesses need.

Shevaun Haviland, director-general of the BCC, said that while firms will welcome some of the measures, the Chancellor "did not fundamentally address the huge cost pressures they are facing".

She added:

"The cut in fuel duty, though very welcome, is just a drop in the ocean compared to the larger tsunami of surging costs that is bearing down on firms and households.

"Smaller businesses are particularly exposed as they have neither the protections or financial support provided to households, nor the negotiating power of larger businesses."

Will the UK's tax burden fall?

Rishi Sunak has been adamant in his tenure as Chancellor that he wants to make personal taxes as low as possible.

He has, however, increased the UK's overall tax burden from 33% of GDP in 2019/20 to 36.3% by 2026/27, according to the OBR - its highest level since the late 1940s.

Most recently, Sunak announced NICs would rise by 1.25 percentage points, but said 70% of workers would end up paying less with the increased NICs threshold.

According to the Resolution Foundation, however, seven-in-eight workers will end up paying more in taxes overall.

Considering all changes to thresholds and rates, only those earning £49,100-£50,300 and £11,000-£13,500 will pay less income tax and NICs respectively by 2024/25, according to the Foundation.

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