UK government announces Tax cuts to tackle the cost of living
The HM treasury of the UK government in their bi-annual statement published several tax cuts and other measures to help customers with the rising cost of living. Heavy inflation following the covid-19 pandemic, the energy crisis and the Ukraine war have put severe pressure on living costs in recent years. Gross salaries lag behind in comparison to rise in costs. The government has decided to lend a hand and therefore the HM treasury on the 23rd of March announced their new tax plan to be rolled out in the coming years.
The government wants to increase the performance of the UK economy through these measures. Not only workers but also businesses will be aided by these new policies. An overview of the main changes:
- 5p cut in fuel taxes per litre
- Personal income tax reduced from 20% to 19%
- Tax free threshold will be raised to £12,570
- Employment Allowance raised to £5,000
These and several other measures will be discussed in detail below.
Fuel tax cuts to help with energy bills
The UK government announced several policies to help consumers and businesses with the higher costs. Including the following:
| Name | Old Value | New Value | Expected yearly savings |
| VAT on Energy saving materials | 5% | 0% | |
| Fuel Tax per Litre | 57.85p | 52.85p | £100*/200** |
| Employment Support allowance | £4,000 | £5,000 | £1,000*** |
* Based on average car driver
** Average van driver
*** Per worker
The UK government reduces fuel tax per litre by 5p.
Gas and Oil prices are going through the roof as of late following the energy crisis last year. Also, recently the developments in the conflict between Russia and Ukraine have put pressure on energy prices. The Energy Price Cap has increased by a whopping 53%. This means that consumers will face steep increases in their bills. The tax cut implemented by the government would help the average car driver in the UK save around £100. Van drivers can even save up to £200 whereas Hauliers can expect to save up to £5,000 a year under the new tax rates.
Vat on renewable energy installation abolished
Other measures include the abolishment of the 5% VAT rate on installing heat pumps, solar panels or insulation in your home. These measures not only help people transition into more efficient and self providing methods for generating energy, but also reduce the dependency on Russian Gas and Oil. Furthermore, the lower prices for renewable energy can help reach sustainability goals. The new measures will be in effect from the 23rd of March already and will help in decreasing the pressure of increasing living costs on UK households. The measures for now will be in place for a year but could of course be prolonged in the future.
Employment allowance raised to £5,000 to help businesses and their employees
To help businesses increase the training and performance of their employees, employee allowances will be increased to up to £5,000. This will help companies to invest more in the training and learning of their employees. These measures can also help employees improve their long term employability through accessing more high quality training. The UK fares badly in comparison to other EU countries on the area of investment in training of the workforce, spending about half of the EU average on employee development. A better educated workforce will increase the productivity of the economy and help their own wages and career development. This could especially help in sustaining the standard of living in the UK in the long-term.
First personal income tax cut in 16 years
Down below the numbers for workers related to the changes in taxes and wages.
| Name | Old Value | New Value | Expected yearly savings |
| Basic Tax Rate | 20% | 19% | £175* |
| Threshold insurance payments | £9,000 | £12,750 | £330* |
| National Minimum Wage | £8.91 | £9.50 | £1,000** |
*Based on average taxpayer
** For full time worker on minimum wage
The most impactful measure to be implemented is the tax cut on the basic tax rate for UK workers. Currently the rate is 20%, however, from 2024 onwards, this rate will be reduced to 19%. Around 30 million workers in the UK will be paying less taxes under the new tax rates. The average taxpayer will be paying £175 less on taxes on a yearly basis.
Another regulation change concerns the treasure for insurance payments by workers. Right now on income below the £9,000 threshold you do not have to pay any insurance contribution(NIC). This number will be changed to £12,750 to decrease the burden of insurance contributions for working people. The average taxpayer can expect to save around £330 pounds a year under the new threshold. This new threshold will be installed in July 2022.
National minimum wage increased significantly
Workers on minimum or close to minimum wages will also be helped with the new rules. The national minimum wage will increase around 6% from £8.91 to £9.50 per hour. If you are working full time on minimum wage, you can expect to see your income rise by over £1,000 a year. These increases in minimum wage will especially help the people who have the most financial struggles within the UK. Providing them with a substantial increase in income.
In these difficult times every little thing helps, the newly announced tax cuts can certainly aid people in relieving some of the financial pressure that is mounting. There are also things that you can do yourself to decrease your living costs which can sometimes really make a difference. Creative ways of saving on your energy bills among others can often help you to save some extra money or allow you to pay your bills with less stress.
Submitted By: Olivia Smith of Papernest / olivia.smith@papernest.com
