Cost of living: do the announcements go far enough or will further measures be needed in the Budget?

Tom Evennett, EY Head of Private Client Services, UK, comments on the measures announced in the Spring Statement to help ease the cost of living pressures:

“The Chancellor made some eye-catching announcements in response to the increased cost of living. First, alignment of the lower national insurance thresholds from July 2022 with those for income tax (at £12,570 – although this appears to be frozen in future years in the same ways as income tax thresholds) will come at a cost of £6.25bn in 2022-23. The Chancellor also announced an income tax cut of 1p to further support individuals and families with their take home pay (worth a further £5bn) but this will only apply from 2024. This provides a direction of travel for tax policy going forwards together with the announcement of the Tax Plan.”

Sarah Farrow, EY Private Client Services Partner, added:

“The other striking announcement – which comes into effect today – is the reduction in fuel duty by 5p. However, this reduction is limited to one year and may be overtaken by subsequent changes in petrol and diesel prices, which are over £1.60 per litre on the forecourt today.  

“There was also a further extension of the Household Support Fund, which provides direct support to Councils to help the most vulnerable individuals in their communities.

“Taken together, this will provide some support for the substantial increases in the cost of living that many people are grappling with. This will also effectively reverse part of the impact of the National Insurance increase and the freezing of the income tax allowances. However, we will have to see whether this will provide sufficient a cushion or if further measures will need to be announced at the Budget later in the year.”

For all our Spring Statement analysis visit our dedicated web page.