Impact of war in Ukraine
On 23rd March 2022, Chancellor Rishi Sunak announced his Spring Statement, detailing how he plans to help people in this country deal with the cost-of-living crisis in relation to the war in Ukraine, the aftereffects of Covid, and the worsening energy crisis.
Sunak opened with a discussion regarding the invasion of Ukraine and the UK’s ‘moral responsibility’ to assist. He described how the sanctions imposed on Russia may adversely impact the UK economy and there is ‘high uncertainty’ in terms of the outlook of the war.
‘Three immediate measures’
The Office for Budget Responsibility (OBR) now estimates inflation will average 7.4% this year, almost double their October forecast for this year of 4%. To counteract the burgeoning crisis, Sunak outlined ‘three immediate measures’:
- Fuel duty cut by 5p a litre to be in place from 6pm 23rd March 2022 for a full twelve months until March 2023.
- Homeowners installing energy-saving materials such as solar panels, heat pumps and insulation will no longer be liable to pay VAT. Wind and water turbines will also be subject to 0% VAT, cut from 5% – potentially reducing the cost of installation by £1,000.
- Another £500m will be put into the household support fund to allow councils to help poorer families.
Sunak went on to discuss his tax plan which aims to ‘help families; create the conditions for higher growth; and share the proceeds of growth fairly.’:
- National Insurance threshold to be increased by £3,000 to £12,570. 70% of workers should benefit from this, amounting to a tax cut for people of £330 per year.
- R&D tax credits are being reformed to encourage investment and Sunak will decide in the autumn whether to make the R&D expenditure credit more generous.
- Tax rates on business investments will be cut in the autumn.
- The previously discussed business rates discount of 50% was confirmed to take effect from April for retail, hospitality, and leisure businesses, with possible savings of up to £110,000.
- Employment allowance will be increased to £5,000 in April 2022 to aid small businesses.
- Basic rate income tax will be cut by 1p in the pound (down from 20p to 19p) in 2024.
These are the main points to note from Sunak’s Spring Statement and the ones that should have the most impact on people and businesses.
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