Spring Statement Comments

The Chancellor Rishi Sunak’s already mounting problems took a turn for the worse this morning with new inflation (CPI) figures hitting a 30 year high at 6.2%. It’s also worth noting that another measure of inflation, the Retail Price Index (RPI) which dictates the increases in train tickets, air passenger duty, car tax, tobacco duty, alcohol duty and the interest on student loans, has hit 8.2% – writes Jason Mountford Financial Planning Expert at Irwin Mitchell

With this difficult backdrop, Rishi Sunak has announced a number of measures in today’s Spring Statement, which aim to assist households feeling the inflation squeeze. The results are underwhelming.

Fuel Duty to be Cut

As was widely predicted, fuel duty has been cut by 5p per litre, from 6pm tonight until March 2023. For the majority of motorists, this is unlikely to make a major difference to their household budget. On an average car holding 50 litres of fuel, a 5p reduction on petrol costing £1.70 per litre will reduce the cost of a tank by £2.50. This will mean a reduction in cost for most motorists of less than £100 per year.

Compounding the underwhelming nature of the announcement is research from the New Economics Foundation, which suggests that the wealthiest 20% of households spend almost 5 times as much on fuel as the poorest 20%.

Energy Efficiency

There were no further announcements to assist households with the rapidly increasing cost of energy. Instead, The Chancellor has announced the removal of VAT for energy efficient additions made by homeowners, such as solar panels and heat pumps.

Sunak announced that this would save homeowners £1,000 on average, however given that the average cost to install home solar panels is £4,800, it is another measure that is unlikely to impact the hardest hit by the energy crisis.

Tax Plan

To calls from the gallery of “Is that it?” there was an announcement for lower income earners.

Rishi Sunak stated that from July, the threshold for paying National Insurance Contributions will be aligned with the Personal Allowance. This increases the minimum threshold by £3,000 per year and will save lower income earners up to £330 per year.

 £330 is significantly less than the £1,300 that the average energy bill is expected to rise by this year, but it is at least a measure that is aimed towards the lowest income earners in the UK.

Is Tinkering Enough?

The broad takeaway for individuals is that these measures may take the edge off the financial pain of the cost of living squeeze, but it will be a long way off removing the pain entirely. Most households will notice little difference to their monthly outgoings as a result of the measure released today.

Perhaps as a way to soften the reception, the Chancellor also dropped a surprise announcement that the Basic Rate of tax will be reducing from 20% down to 19%, but not until 2024.