Chancellor Rishi Sunak's latest Spring Statement contained a number of policies of interest to advisers, as well as ending in a tax rabbit.
As Sunak addressed parliament (March 23) he pledged his Spring Statement would build a stronger economy for the UK and he would stick to his plan to reduce taxes by end of parliament, most notably in a "responsible" way.
He addressed widespread calls for his 1.25 percentage point Health and Social Care levy – to be introduced in April, first in the form of extra national insurance payments and from next year as a standalone levy – to be scrapped or postponed.
He did not scrap the levy but instead raised the threshold from which workers start to pay national insurance by almost £3,000 to £12,570, in line with income tax.
This had been planned for the end of this parliament but has been brought forward.
He also cut fuel duty by 5p per litre until March next year, cut the 5 per cent VAT payable on energy efficiency upgrades, such as solar panels and heat installation to zero, and doubled housing support funding for those most in need to £1bn.
But perhaps inevitably given the economic backdrop the country finds itself in, he ended his speech by pulling a tax rabbit out of hat, albeit a deferred tax relief.
By 2024, he pledged to cut the basic rate of income tax by 1p, from 20p in the pound to 19p.
Will this be enough to support consumers and the economy?
Walid Koudmani, chief market analyst at XTB, says: "While the announcement may provide some relief to the economy, which faces the increasing risks of stagflation, a sustained response will be required by the government and Bank of England to maintain price stability and ensure the longevity of the post-pandemic recovery."
Institute of Fiscal Studies director Paul Johnson is more critical, saying the combination of increased national insurance rates and a reduced income tax rate will make the tax system "both less equitable and less efficient".
"If he wants to be remembered as a tax reforming chancellor, so far he is headed in the wrong direction," he says. "[His policies] will increase the wedge between higher taxes on earnings and lower taxes on pensions and unearned incomes."
He adds: "But perhaps what really stands out is what was missing. In the face of what the [Office for Budget Responsibility] calls the biggest hit to household finances since comparable records began in 1956-57 he has done nothing more for those dependent on benefits, the very poorest, besides a small amount of extra cash for local authorities to dispense at their discretion. Their benefits will rise by just 3.1 per cent for the coming financial year. Their cost of living could well rise by 10 per cent."
The economic picture
This statement was not supposed to be a major fiscal event but a challenging economic environment with rising inflation, a growing cost of living crisis, and further uncertainty stemming from the war in Ukraine, forced the chancellor to produce more than just a set of economic and fiscal forecasts.
