Spring statement: An unexpected income tax cut to tackle cost of living squeeze

Tony Medcalf, Tax partner at MHA Moore and Smalley, said: “This was more like a mini-budget than a spring statement with tax cuts and tax breaks announced to tackle record inflation.

“The 1% cut to the basic rate of income tax promised by the end of the parliament by 2024 will steal the headlines – an unexpected rabbit out of the hat the chancellor left to the end of his statement. Another significant intervention was the increase in the National Insurance threshold by around £3,000 effective from July 2022, bringing it in line with the income tax personal allowance.

“This was a longer-term target for the chancellor but has been significantly accelerated and, while it stopped short of the postponement in the 1.25% rise in National Insurance Contributions many had called for, it will help lower earners keep more of their income.

“The 5% cut to fuel duty should provide some welcome relief for motorists and the removal of VAT on energy efficiency measures will save money for households looking to reduce energy costs. For businesses, an increase in the employment allowance to £5,000 will help some small business owners reduce employment costs from April onwards.

“Despite the tax cuts, Mr Sunak made clear during his statement that the public finances would likely get worse and that additional public borrowing would be limited. This means we may see measures further down the line to increase the tax take.”

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