Following his Autumn 2021 Budget, Chancellor Rishi Sunak may have planned to use the upcoming Spring Statement to advance policies to support the UK’s economic recovery as we emerge from the coronavirus crisis. But on top of the economic challenges of the pandemic, Rishi will also have to face up to the huge implications of the war in Ukraine, which will in turn add further to the UK’s cost of living crisis. Inflation is sitting at its highest rate in three decades, with the next ONS data due on the morning of the Spring Statement. But already, household incomes are being squeezed more than many people will have experienced in their lifetimes, and there’s more to come with double digit cost of living predictions.
The Chancellor has already announced some targeted support to help ease household finances, such as the energy bills and council tax rebate package. The big question is will Rishi go further to ease the financial pressures people are facing and could we see changes to recently announced initiatives which may have been affected by developments over the last few months?
Six possible changes:
- Delaying the National Insurance increase
- Revisiting last April’s stealth tax freezes
- Additional support for state pensioners
- Revisiting the pensions lifetime allowance
- Helping the over 50s remain in or return to work
- Enabling new forms of financial guidance
Steven Cameron (pictured), Pensions Director at Aegon, comments on six possible changes we could see in next week’s Spring Statement:
Delaying the 1.25% National Insurance increase
“The government is facing a barrage of calls to ease the cost of living squeeze, and it’s not surprising that this includes asking the Chancellor to defer April’s 1.25% National Insurance increase for individuals and employers. The increase in NI will cost the average worker £250 a year at a time when prices are rising at the fastest rate for three decades, with the squeeze on income expected to worsen in the coming months.
“The increase in NI is to provide further support for the NHS and to fund the government’s share of its new social care proposals. But after the House of Lords rejected the draft Social Care funding Bill, finalising the deal may take some time, possibly increasing the justification for a delay in the NI increase, perhaps for a year.
“However, despite all the many financial challenges we face as a nation, the government can’t ignore the need to prop up the NHS and implement a new social care deal with an appropriate cap on care costs. The health impact of the pandemic has shown just how important it is to have a high quality, properly funded care system, and this will have to be paid for.”
Revisiting last April’s stealth tax freezes
“In his April 2021 Budget, Rishi introduced a raft of freezes to tax allowances and thresholds rather than increasing these in line with inflation. This included income tax thresholds and bands as well as wealth tax exemptions and the pensions ‘lifetime allowance’.
“While in the past such ‘stealth tax’ measures have often gone unnoticed, in the current climate of rampant inflation, they will have a major adverse impact on an increasing number of people. For example, many more people will become higher rate taxpayers.
“The Chancellor could not have foreseen the events which have led to inflation rising sharply and may wish to revisit this approach in his Spring Statement, perhaps by increasing allowances or committing to end the freeze before the planned 5-year term.”