Chancellor Rishi Sunak’s Spring Statement brought a mixed bag of results, with a tiny dent in soaring fuel costs and a cut to income tax rates which is scheduled for 2024. However, there was minimal relief for suffering households on Wednesday as the UK’s inflation hit a 30-year high of 6.2%.
The inflation rate is expected to average 7.4% for the remainder of 2022, with a peak of 8.4% expected in the final quarter of the year when winter bites a massive chunk out of household budgets with rising energy costs.
The Office for Budget Responsibility (OBR) also reported that the UK economy is forecasted to grow at a reduced level of 3.8% compared to 6% in 2021, serving up bad news for struggling consumer brands and retail companies.
Fuel and Energy
Sunak announced that fuel duty will be cut by 5p per litre until March 2023, however, the concession will provide little comfort for households dealing with the skyrocketing cost of filling up their cars.
“The giveaway for motorists was in the cutting of fuel duty by 5p litre, saving British motorists £7m a day,” said AJ Bell head of personal finance Laura Suter.
“This means for the average 55 litre car someone will save £3.30 each time they fill up.”
“However, this is a tiny portion of the amount we’ve all seen fuel costs rise by: since the start of the month alone petrol prices have risen by 13p and diesel prices by 21p.”
Global sales trader at Saxo Markets Mike Owens added: “Fuel duty cut by 5p per litre feels like a drop in the ocean compared to the price rises we’ve seen at the pump and also when you consider the energy bill cap is rising 54% in April.”
The Chancellor also announced that additions of energy-efficient upgrades to houses will not be subject to VAT for the coming five years, however, this move will probably only benefit households that already have the extra money to spend on solar panels and new energy-efficient infrastructure, providing little assistance to households dangling dangerously close to poverty.
Standard of Living
The Chancellor announced a rise in the income threshold for national insurance of £3,000 to £12,570 per year.
The move will undoubtedly elicit a sigh of relief from households, who stand to keep an extra £330 a year on average.
“As concessions go, raising the National Insurance threshold to £12,570, in line with the personal allowance, is a big one,” said interactive investor head of savings and pensions Becky O’Connor.
“It will come as a relief to those worried about the impact of the Health and Social Care levy. The typical saving of £330 a year is significant.”
Despite this announcement, the Office for Budget Responsibility said the UK was facing “the biggest fall in living standards in any single financial year since ONS records began in 1956-7”.
Sunak further announced an increase to the household support fund by £500 million, to be given to local authorities from April, resulting in a total fund of £1 billion to assist vulnerable households with rising living costs.
However, these measures are unlikely to provide sufficient relief in the face of soaring inflation.
“The big rabbit out of Rishi Sunak’s hat was announcing a cut to income tax rates from 2024, and while that will grab the headlines it’s precisely zero help to families struggling with the cost-of-living crisis now – or indeed for the next two years,” said Suter of AJ Bell.
