What does this Spring Statement mean to you?

Thursday 24th March 2022

Women sorting her finances

Spring Statements often focus on economic updates, previews, and consultation launches but, with the ongoing conflict in Ukraine, soaring petrol, energy, and food prices, the chancellor was under intense pressure to ease the burden on businesses and households.

Fuel Costs

Fuel duty to be cut by 5p per litre until March 2023

Fuel duty has sat at 57.95p per litre since 2011 but the rapid escalation in oil prices meant that something had to give. The 5p per litre cut will be welcome news to motorists and business fleet operators and it’s interesting to note that, according to research by the RAC, over half the cost of petrol comes from some form of taxation:

  • Fuel Duty: 35%
  • Cost of petrol to supplier: 33%
  • VAT: 17% (as a percentage of cost rather than the rate charged)
  • Retailer profit: 8%
  • Cost of biofuel: 7%
  • Supply and delivery costs: 1%

It should be remembered that there is no legal responsibility for retailers to pass the full extent of the cut on to customers and so motorists will need to keep a keen eye on any fluctuations in price.

The Economy

Unemployment and debt falling, growth predictions revised downwards, and inflation rising

Let’s face it, the news wasn’t great, but it wasn’t a surprise either. The Office for Budget Responsibility (OBR) downgraded their growth predictions from 6.0% to 3.8% for the current year, with erratic growth to follow over the next few years. However, unemployment did fall to 3.9% in the three months to January, rather than the 5%+ previously predicted. Government debt is also expected to fall by 3.7 percentage points by 2026/27.

Of more immediate interest to many is the annual inflation rate, which is now expected to peak at 8.7% in the final quarter, averaging 7.4% between now and the end of the year. This is clearly not good news and will put household budgets under real pressure.

Benefit-in-Kind Taxation

Silence on Benefit in Kind (BIK) rates beyond 2025 makes it difficult to plan ahead

One of the topics the chancellor avoided addressing was Benefit in Kind taxation. Currently, rates are only known up to 2024/25 which means that drivers looking to switch vehicles now are unlikely to know how much tax they will be paying by the time it comes to handing it back.

Managing Director of Novuna Vehicle Solutions, Jon Lawes, commented

What UK businesses require now, is greater clarification on future Benefit in Kind (BIK) rates beyond 2025, which will need to be confirmed in the Autumn Budget, if not before.
Jon Lawes (1)

Jon Lawes

Managing Director

Novuna Vehicle Solutions

Electric Vehicles

More to be done with existing funds ahead of the EV Infrastructure Strategy release

The lack of information concerning BIK rates is most worrying for the millions of drivers with petrol and diesel cars who are currently paying the highest rates of tax. Whereas the large swathes of motorists switching to EVs are already benefiting from BIK rates of just 2% for the next three years.

Addressing the cost of EV public charging and plans to ramp up the availability of public charge points will be extremely welcome when the EV Infrastructure Strategy is released”.

However, there is money already on the table that local government could be doing more to use. Our own research has found little evidence that a quarter of a billion gross annual capital investment fund granted to the UK’s nine Metro Mayors is being used to install much needed EV infrastructure.

We are calling for local Governments to address the EV infrastructure shortage and use their budgets to increase the number of charging points across the UK to support to the UK’s rapidly growing EV market.

Jon Lawes (1)

Jon Lawes

Managing Director

Novuna Vehicle Solutions

Other Taxes

Future cuts promised and thresholds raised but National Insurance rise goes ahead

Mr Sunak had been under pressure to delay, or even ditch, the 1.25 percentage points National Insurance rise scheduled for April. However, the chancellor used the Spring Statement to confirm that the rise would go ahead. For many people this couldn’t come at a worse time, with an effective drop in take-home pay coming just 5 days after a 54% rise in the energy price cap comes into force.

Slightly better news is that the threshold for employees starting to pay National Insurance is to rise by £3,000 to £12,570. This could mean an effective tax cut of £330 per year but some have argued that it is counterintuitive to raise the limit and the rate of taxation at the same time. Looking further ahead, the chancellor has pledged to cut the basic rate of income tax from 20p to 19p by the end of the parliament. But it is just a pledge.

Employers are also facing a hike in National Insurance contributions and so smaller businesses seeking relief from National Insurance payments will welcome the increase in Employment Allowance from £4,000 to £5,000.

Rising Energy Costs

VAT cut on energy saving materials as prices soar

With a record increase in global gas prices, the energy price cap is set to increase on 1 April. This means that direct debit customers on default tariffs will see an increase of £693 per year. The cap is updated twice a year and so the OBR’s prediction that energy bills will rise by 40% in October indicates that things could get far worse before they get any better.

To support vulnerable households, local authorities will get a further £500m in April to help people struggling with the rising cost of living. This is welcome news but, as always, not everyone will get the help they need. On a more positive note, homeowners wanting to install solar panels, insulation, or energy efficient heat pumps, will benefit from a 5 percentage points drop in VAT for the next five years.

What’s Next?

This was never going to be an easy time for the chancellor and it’s clear that the Autumn budget will need to provide further clarity on key issues such as taxation policy, road pricing, and EV infrastructure.

The last few years have been extremely challenging for everyone and the reality is that furlough schemes and an unprecedent demand on the NHS all needs to be paid for. Whether the chancellor is getting it right or wrong is a matter of opinion, all we can do is to help you minimise the cost of motoring through our full range of business and personal vehicle solutions.

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Novuna Vehicle Solutions is a trading style of Mitsubishi HC Capital UK Plc. Other brand names under which we trade include Novuna Consumer Finance, Novuna Personal Finance, Novuna Business Finance and Novuna Business Cash Flow.

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