Spring Statement 2022: Blossoming prospects for NI?
By Nathan Mulholland and Eileen Regan
On 23 March 2022, the United Kingdom (UK) Chancellor delivered his 2022 Spring Statement, which this article considers from a Northern Ireland (NI) perspective.
The Chancellor made his decisions amidst a number of serious challenges facing the UK, including global economic adjustments post-COVID-19 and other changes arising from Brexit, contributing to significant cost of living increases, eg rising fuel and energy prices. Most recently, the war in Ukraine has intensified the spectre of further inflationary rises. The Bank of England (BoE) expects inflation to reach 8% by spring 2022, with the possibility of even higher rates thereafter. The Office for Budget Responsibility (OBR) forecasts further escalation, forecasting its peak at 8.7% in the fourth quarter of 2022.
Factoring in the above and the broader macro-economic context, the Chancellor based his Spring Statement on what he described as a ‘principled approach’ during these challenging times. In doing so, he said he was meeting his specified fiscal rules announced in Autumn 2021, while introducing new measures aimed to support ‘People Capital Ideas’. So how are the Chancellor’s decisions anticipated to translate in NI’s unique social, economic and political context? Let’s run through his Statement’s key features…
Fuel Duty reduction
It was expected that the Chancellor would reduce duty to help ease current fuel cost prices, which he confirmed by a 5p per litre reduction in Fuel Duty on petrol and diesel. It is to remain in place for a year. The NI Finance Minister expressed dissatisfaction with the amount of the reduction, describing it as:
…minimal. A 5p reduction will be of little comfort to motorists given that petrol and diesel prices have increased by over 20 and 30 pence per litre respectively since the start of this year.
Given the percentage of NI households with access to at least one car or van – noted at 83% in 2019/20) – many will benefit from this. However, as the Assembly Research and Information Service (RaISe) explained in the past (Paper 15/311), such reductions have less impact on the most deprived in NI, where lower car ownership levels exist in higher social deprivation areas.
Value Added Tax (VAT) Relief
The Chancellor also announced VAT relief for the installation of energy-saving materials. But he also noted that the new measure will be effective next month only in Great Britain, not NI, due to the Ireland/Northern Ireland Protocol. Nonetheless, the Chancellor explained that “…the Executive will receive a Barnett share of the value of the relief until it can be introduced UK-wide”, as an interim measure. The NI Department of Finance (DoF) reported that amount to be £34 million additional 2022-23 Resource DEL (Departmental Expenditure Limits – RDEL). The ‘consequential’ amount is to be confirmed by Treasury; and it will be a matter for the incoming Executive in the next Assembly mandate to decide what it is spent on.
Additional household support funding
The Chancellor provided an additional £500 million (m) to the existing £1 billion (bn) ‘Household Support Fund’ for vulnerable households and individuals in England post-COVID-19; delivered through local authorities from next month. NI’s Barnett consequential for this will be £14m RDEL, according to the Treasury. That funding could support 13% of people (approximately 241,000) who live in absolute poverty in NI (before housing costs are accounted for). That 13% comprises: 17% children, 14% pensioners and 11% working age of the total proportion each group makes up within the NI population.
Increased National Insurance contributions threshold
The Chancellor adjusted the National Insurance Contributions (NICs) threshold, instead of his previously announced NICs rate increase (12% to 13.25%). Using this lever, effective from April 2022, he equalised the NICs threshold with the current Income Tax level – £12,570. In response, the NI Finance Minister noted it was helpful now, but the Chancellor had not gone far enough:
Increasing the threshold for National Insurance Contributions will help mitigate the impact of the hike on workers on the very lowest incomes, but the Chancellor should have gone further by scrapping his planned increase in National Insurance entirely.
NI beneficiaries of this change potentially amount to 19% of employees considered to be working in low paid jobs. However, the measure will not help those who are of working age and currently not in work, as well as those outside working age.
Future reduced Income Tax
For future – effective from April 2024 – the Chancellor announced a basic Income Tax cut: ie the UK rate reduced from 20p to 19p in the pound. While a benefit to a significant proportion of the NI population, it will be another two-years before they will benefit. That does little to address current cost of living issues.
Overall, the Chancellor’s Statement included measures that many describe as “disappointing” or “underwhelming”. Relative to NI’s unique social, economic and political circumstances, the measures will have limited impact via the Fuel Duty cut and the increased NICs threshold: those measures will leave many – especially amongst the most deprived – with no change in their present challenging circumstances. And the impact of the promised Income Tax cut remains to be seen in two years. As for the increased RDEL funding that the Executive will receive via the consequentials arising from the VAT Relief and the additional Household Support Funding, their impact remains to be seen, as it will depend on how that funding will be spent in NI. Those decisions remain unclear, especially given the currently collapsed Executive and the imminent end of the current Assembly mandate on 27 March. While some positive seeds have been planted by the Chancellor’s Statement, for the moment, it is not looking like a bumper crop for NI citizens.