This month we consider the major announcements from the Chancellor’s Spring Statement.
We also update you with the latest economic growth forecasts and the Bank of England’s latest decision on interest rates. With guidance on student loans and ground rents for leaseholders, there is a lot to update you on.
- Chancellor cuts fuel duty in Spring Statement
- Business groups give mixed response to Spring Statement
- OBR updates economic picture
- MTD for VAT brings in up to an extra £195 million in tax
- Bank of England raises interest rates for third time in a row
- UK economic growth to halve this year, warns BCC
- Student loan repayments for new borrowers to start at £25,000
- CMA frees leaseholders from rising ground rents
Chancellor cuts fuel duty in Spring Statement
Chancellor Rishi Sunak announced a 5p per litre cut in fuel duty for petrol and diesel in the 2022 Spring Statement.
The government says it is the largest ever cut on all fuel duty rates, which applies from 6pm on 23 March 2022.
The Chancellor also announced that the starting thresholds for national insurance contributions (NICs) will rise to £12,570.
From 6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a 3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175 per week.
Although employees’ NICs only become payable once earnings exceed £242 per week, any earnings between £123 and £242 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs.
For the self-employed, where their profits exceed £11,908 per annum, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that upper profits limit.
However, from April 2022, there will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023.
Mr Sunak also pledged that the basic rate of income tax will be cut by 1p in the pound in April 2024. By then the Chancellor said that the Office for Budget Responsibility (OBR) expects inflation to be back under control, with debt falling sustainably.
From April 2022, a £1,000 increase to the Employment Allowance will benefit SMEs, while there will be no business rates due on a range of green technology used to decarbonise buildings.
In addition, the Chancellor announced 50% business rates relief for eligible retail, hospitality, and leisure properties.
In his Spring Statement speech, the Chancellor said:
‘This statement puts billions back into the pockets of people across the UK and delivers the biggest net cut to personal taxes in over a quarter of a century.
‘Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.’
Internet links: GOV.UK
Business groups give mixed response to Spring Statement
The UK’s business groups gave a mixed response to Chancellor Rishi Sunak’s Spring Statement speech.
Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:
‘The Spring Statement falls short of the action businesses needed to see. While there are some positive announcements that firms will welcome, it did not fundamentally address the huge cost pressures they are facing.’
The Confederation of British Industry (CBI) warned that the measures announced by the Chancellor ‘don’t do enough to tackle the current challenges facing firms’.
Tony Danker, Director General of the CBI, said:
‘The Chancellor is right that the government can’t solve every challenge. However, the only enduring response to inflation, energy prices and cost of living challenges is a relentless campaign for economic growth.’
Meanwhile, the Federation of Small Businesses (FSB) said that it was pleased to see the Chancellor adopt its recommendation of uprating the Employment Allowance to help small employers with national insurance costs.
Martin McTague, National Chair of the FSB, said:
‘We originally put forward the Employment Allowance as a targeted measure to help small firms, and it has now been expanded three times since its creation.
‘Together with a cut to fuel duty, these measures will provide crucial breathing space for our embattled small employers.’
OBR updates economic picture
In his Spring Statement speech, Chancellor Rishi Sunak responded to the latest forecasts as published by the Office for Budget Responsibility (OBR).
The OBR forecasts UK economic growth to be 3.8% in 2022, a significant cut from its previous prediction of 6.0%. The OBR then predicts the economy to grow by 1.8% in 2023 and 2.1% in 2024.
Meanwhile, borrowing is set to more than halve from its post-World War II high of £322 billion (15.0% of GDP) in 2020/21 to £128 billion (5.4% of GDP) in 2021/22.
Borrowing is then predicted to be £16 billion higher in 2022/23 than previously forecast in October.
In its latest forecast, the OBR said that Russia’s invasion of Ukraine has had ‘major repercussions for the global economy’, which has already been severely impacted by the coronavirus (COVID-19) pandemic and rising inflation.
The significant rise in gas and oil prices since the start of the conflict will ‘weigh heavily on a UK economy that has only just recovered its pre-pandemic level’, the OBR said.
In regard to rising levels of inflation, the public body said that real living standards are set to fall by 2.2% in 2022/23 and not recover to their pre-pandemic level until 2024/25.
Internet link: OBR website
MTD for VAT brings in up to an extra £195 million in tax
Estimates show that up to £195 million in extra tax revenue has been collected via Making Tax Digital for VAT (MTD for VAT), according to research from HMRC.
The research, conducted by HMRC and peer reviewed by independent academics, showed that in 2019/20 the estimated additional tax revenue was between £185 million to £195 million, compared to a previous estimate of £115 million.
The tax authority stated that the additional revenue was due to the reduction in error on tax returns.
The research revealed that, for businesses below the £85,000 turnover threshold, the estimated additional tax revenue that is collected is £19 per business per quarter, which is a 2.2% increase from the average liability estimates for businesses not signed up to MTD.
For businesses above the threshold, the estimate of the average additional tax revenue is £57 per business per quarter and is a 0.9% increase.
Internet link: GOV.UK
Bank of England raises interest rates for third time in a row
The Bank of England has raised interest rates for the third consecutive time.
The Bank also warned that the Ukraine conflict could see under-pressure households hit with double-digit inflation later this year.
Members of the Bank’s Monetary Policy Committee (MPC) voted eight to one to increase rates from 0.5% to 0.75%. The move takes rates back to where they were before the pandemic struck.
Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI), said:
‘With ongoing conflict in Ukraine pushing global commodity prices higher and exacerbating supply chain disruption, the MPC are clearly making moves to counter growing inflation.
‘But they will be walking a tightrope in the months ahead, having to both keep price pressures in-check and manage the impact of tighter monetary policy on economic growth – particularly against a background of rising living costs.’
Internet link: Bank of England website
UK economic growth to halve this year, warns BCC
UK economic growth is expected to halve this year amid soaring inflation, major tax rises, and global shocks including Russia’s invasion of Ukraine, warns the British Chambers of Commerce (BCC).
The BCC has downgraded its expectations for UK GDP growth in 2022 to 3.6% from 4.2% in its previous forecast in December 2021. This would be less than half the growth of 7.5% recorded last year.
It says business investment is forecast to grow at 3.5% in 2022, down from the previous forecast of 5.1%.
The BCC says that rising raw material costs, the increase in the energy price cap, the reversal of the hospitality VAT cut and upward pressure on energy and commodity prices from the impact of Russia’s invasion of Ukraine will lift inflation.
The business group forecasts inflation reaching a peak of 8% in Q2 2022, the highest rate since July 1991. The BCC also projects that UK interest rates will double over the course of this year, from 0.5% to 1%.
Suren Thiru, Head of Economics at the BCC, said:
‘Our latest outlook suggests a legacy of COVID and Brexit is an increasingly unbalanced economy with a growing reliance on household spending to drive growth. Such economic imbalances leave the UK more exposed to economic shocks and reduces our productive potential.’
Internet link: BCC website
Student loan repayments for new borrowers to start at £25,000
The level at which students begin to pay back their loans will be lowered from £27,295 to £25,000 for new borrowers.
From September 2023, the interest rate on student loans will also be set to RPI+0%. Additionally, the length of time that students have to pay their loans back until they can be written off has been extended from 30 to 40 years.
University tuition fees have been capped at £9,250 for the next two years and will not rise with inflation.
Michelle Donelan, Higher and Further Education Minister, said:
‘We are delivering a fairer system for students, graduates, and taxpayers as well as future-proofing the student finance system. We are freezing tuition fees and slashing interest rates for new student loan borrowers, making sure that under these terms no one will pay back more than they have borrowed in real terms.’
Internet link: GOV.UK
CMA frees leaseholders from rising ground rents
Intervention by the Competition and Markets Authority (CMA) has freed more leaseholders from increasing ground rent terms that saw them trapped in homes they struggled to sell or mortgage.
Businesses which had bought freeholds from housing developer Countryside have now given formal commitments to the CMA to remove terms that cause ground rents to double in price.
These terms, which kick in every ten or 15 years, mean people often struggle to sell or obtain a mortgage on their leasehold home.
Their property rights can also be at risk if they fall behind on their ground rent. The move comes after the CMA secured undertakings from Countryside in September 2021 to strike out terms that doubled ground rent every ten to 15 years.
Andrea Coscelli, Chief Executive of the CMA, said:
‘Thousands more leaseholders can now rest easy knowing they will not be forced to pay costly doubling ground rents. We believe these terms are unjust and unwarranted and can result in people trapped in homes they are unable to sell or mortgage – a major cause of anxiety and stress for so many.
‘We welcome the commitment from these businesses to do what is right by their leaseholders by removing these terms, and we will hold them to it.’
Internet link: GOV.UK