The Spring Budget and its Relevance to Scotland

March 29th 2022

Rishi Sunak’s Spring Statement last week provided some good news for taxpayers but hasn’t been as well received as his previous giveaways. The highlights are:

• 5p per litre cut in fuel duty
• An increase in the NIC primary threshold and lower earnings limit from £9,570 to £12,570
• Class II NI liabilities reduced to nil where the taxpayer earns between the small profits threshold and the lower profits limit
• Increase the employment allowance to £5000 from 6 April 2022 to support small business
• A cut in the basic rate of tax from 20% to 19% in 2024

Fuel duty cut
This cut will be in place until March 2023. It could be argued that this particular measure was not very well targeted to those who are feeling the squeeze of inflationary price rises most. The cost is estimated to be £5bn for the treasury coffers, but there is some evidence that the equivalent value of relief will not be passed on to households. The AA’s most recent study shows that the average price of petrol across the UK has fallen by only 2.71 pence since the change, and the average price of diesel by only 1.59 pence.

NIC thresholds uplifted
With an increase in the lower earnings threshold for NIC purposes from £9,570 to £12,570 all taxpayers should see a tax benefit of £330 on average. This does not affect employers, for whom the relevant limits will remain as before.

Further to this, self-employed people earning between the small profits threshold and the lower profits limit will no longer have to pay class II NIC. They will instead get a national insurance credit for the year in question.

Employment allowance
This allowance supports businesses by providing relief on their employer secondary Class 1 NICs and Health and Social Care Levy liabilities. It is being raised from £4k to £5k in April 2022. It will go some way to assisting small businesses with the increased rates of National Insurance payable as of 6 April 2022.

Tax cut
Mr Sunak has also committed to reducing the basic rate of tax from 20% to 19% in 2024. The basic rate of income tax only applies to savings income in Scotland, with our tax rates on general earnings being devolved to Holyrood. As a result, this tax cut will not have much impact in Scotland. However, the Scottish Government will, in 2024, receive an increase in its block grant which is broadly equivalent to the costs of a 1p reduction in the UK basic rate in Scotland. The Scottish Government will then be free to decide whether to use this additional funding to follow Mr Sunak and decrease tax rates, or to increase public sector spending.

As ever, Mr Sunak appears very pleased with his offerings. And it must be acknowledged that the NI threshold changes are a well targeted measure, albeit they amount to quite a small sum when taken in the context of a multi-decade high inflation rate of 6.2% and benefit uplifts of only 3.1%.