Laura Suter, head of personal finance at AJ Bell, comments on next week’s Spring Statement:
“Next week’s Spring Statement is only meant to be an economic update, not a full-blown Budget. But with a cost-of-living crisis hitting the headlines and people across the country struggling to pay soaring bills for energy, food or petrol, it seems impossible that Chancellor Rishi Sunak will ignore all that and not offer any help to the UK public.
“The Government has already announced some handouts, but that was before the Ukraine crisis pushed energy costs even higher and left households looking down the barrel of another estimated £1,000 on their annual energy bills later this year, on top of the existing £700 hike coming next month.
“At a time when some households are having to make tricky decisions between paying for heating or food, it looks particularly poorly timed for the Government to be launching a new tax hike, in the form of a rise to National Insurance, or freezing income tax rates and so taking more out of people’s pay packets by stealth. At the same time, hospitality businesses will see an increase to their VAT back to 20% after the emergency lower rate during the pandemic and many businesses will face rising staff costs thanks to a minimum wage increase.”
What can the Chancellor do to help?
Help with energy bills:
“When the energy price cap changes in October average household energy bills are now predicted to rise to £3,000. The current Russia/Ukraine crisis has pushed energy costs higher and they could go above that. The current help from the Government to soften the blow of rising energy bills only covers about half of the existing increase that we’re due to see in April. At that point the average household energy bill will rise by £700. But if we do see energy bill costs rise another £1,000 on that, you’ve got £1,700 of increases in 2022 and just £350 of support.
“One option that might appeal to the Government is to extend the £200 energy bill loan scheme. This is a no-cost move over the longer term, as everyone will pay back the money over the next five years. The Government could also decide to defer when the repayments begin, as they are due to start from April at a rate of £40 a year. Now it looks like higher energy costs are here for longer, it doesn’t look very wise to have the repayments starting so soon, when people will still be battling higher bills.
“The Government could also extend the £150 council tax rebate and increase the amount. However, as this is an actual giveaway, not a loan, this is a big cost to the Government. It has also been criticised as an untargeted handout, with lots of people receiving it who aren’t actually struggling with bills at the moment.
“Another option, which Labour is calling for, is another extension to the Warm Home Discount scheme, which gives some low-income families £150 towards their energy bills. The Chancellor could increase the amount or expand the reach of the scheme. Labour is also calling for a windfall tax on oil and gas companies, with the money being redirected towards those who need it most. However, this is a politically fraught move that the Government has dodged so far.”
Delay the NI hike and dividend tax increase:
“The planned 1.25 percentage point increase in the National Insurance rate and dividend tax rate could be halted for a year. The move is intended to raise money for health and social care. Because there wasn’t time to set up an entirely new Health and Social Care Levy before the tax rise came in, it’s being temporarily added to National Insurance rates for this year only, meaning there is room for the Government to U-turn on the move and implement it fully as a new levy from 2023.