Rishi Sunak began his address to Parliament on 23 March on a solemn note, observing that he was delivering his Spring Statement amid wartime, in light of Russia’s ongoing invasion of Ukraine. He warned that the cost of living is set to remain consistently high in 2022. In May, the Bank of England forecast that inflation, as measured by the Consumer Prices Index, will surpass 10% this year, well above the target rate of 2%.
Crumbs of comfort were offered to consumers amid the cost of living crisis. A 5p per litre cut to fuel duty, effective immediately and lasting for a year, offers some respite as petrol and diesel prices surge, while VAT has been scrapped on home energy-saving/energy-efficient products. The Employment Allowance rose to £5,000 from 6 April, a move that represents a tax cut worth up to £1,000 for around 500,000 small businesses. The Treasury also implemented two significant tax changes:
National Insurance thresholds rise
The Chancellor sprung a surprise, announcing that the National Insurance thresholds for the employed and self-employed will increase by almost £2,700 from July 2022, aligning with the income tax threshold of £12,570. This means that no National Insurance (or income tax) will be paid on the first £12,570 that you earn. 2022/23 National Insurance rates include the new 1.25% Health and Social Care Levy.
Basic rate income tax cut
In another surprise move Rishi Sunak announced a reduction to the basic rate of income tax from 20% to 19%, the first cut to the basic rate in 16 years. There is a caveat, however. The Chancellor pledged to implement the change by the end of the current Parliament in 2024, meaning that consumers will not feel the benefits for two years.
Don’t let your savings ‘rot’
A large rise in household energy bills hit in April, as consumer prices continued to climb. The National Insurance thresholds rise and (deferred) pledge to cut the basic rate of income tax are unlikely to provide any meaningful relief as the public collectively feel the squeeze.
Soaring inflation means that savings/bank accounts are losing value in real terms (interest rate minus inflation). With inflation forecast to hit 10% before the year-end, £100,000 in the bank account might soon be worth £10,000 less than a year earlier. How, then, can consumers combat the rising cost of living?
Protect against inflation
Some assets, such as stocks, property or commodities, offer better returns than cash and the potential for capital gains if you can tolerate the ups and downs that are a natural part of long-term investing. It’s important to set some cash aside as an emergency reserve.
Make an appointment with a Lumin expert on 03300 564 446, or via our contact form, to discuss how you can balance wealth protection and long-term investment returns.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
