With the effect of wage inflation, more people and families than ever will be dragged into 40 per cent taxation.
To put this into context, a typical family of four with one working parent earning £62,000 will be worse-off by £251 next tax year compared to the 2010-11 tax year.
Tax allowances have not moved in the past 10 years so a typical family has seen a decrease in absolute terms, and considerably worse-off when you factor in inflation.
As petrol prices rise at unprecedented rates, an immediate 5p per litre cut to fuel duty was announced.
The cut in fuel duty is temporary for 12 months and will cost £2.4bn, but the reduction could remain in place if fuel prices continue to soar.
Beyond the headlines
The health and social care levy will add to the NIC burden for businesses with employers’ NICs increasing to 15.05 per cent.
For an employer, an employee earning £100,000 will cost an additional £923 a year from the next tax year.
The increase to the NIC threshold will not help businesses, but the chancellor raised the employment allowance from £4,000 to £5,000 from the 2022-23 tax year.
The employment allowance is targeted at businesses with NIC liabilities of less than £100,000 and the increased limit is estimated to benefit just under half a million small businesses.
Despite soaring energy prices there was no further direct support following last month’s £9bn energy rebate package.
However, Sunak set out his ‘green’ credentials by removing VAT on solar panels and heat pumps for the next five years.
The chancellor heralded that this measure was only possible as the UK had left the EU, as previously reducing VAT to zero was not allowed, following a ruling by the Court of Justice of the European Union.
Finally, a chancellor statement must include additional funding for HM Revenue & Customs and Sunak announced more than £160mn targeted at improving debt management.
The additional funding is estimated to raise more than £3bn in additional tax; but HMRC has just written-off £4bn relating to fraud around the coronavirus support measures, and the further funding for HMRC will have not been well received in some parts of government.
The chancellor’s tax plan continued
Sunak published his tax plan alongside the spring statement.
The first tax plan was thin on details beyond what was announced, but it set out the themes for reforming tax incentives for business investment, incentivising businesses to introduce the right kind of training, and enhancing the UK’s research and development tax relief regime.
For the chancellor’s tax plan to make a long-term meaningful difference, he needs to address the complexity of the UK tax system and the level of the tax burden on individuals.
