The OBR and BoE say that inflation will fall back materially in the following years to the official target of 2 per cent.
With the severe inflationary impact, the prime minister and large parts of the Conservative party wanted Sunak to cancel (or at least delay) the health and social care levy.
But this is a fiscally responsible chancellor, with a photo of Nigel Lawson in his office and ambitions to be a ‘low tax’ chancellor, however, Lawson did not have the scars of a global pandemic and the dark shadow of a £2.3tn national debt.
What did we get?
In a moment of major fanfare that would be worthy of any Budget announcement, Sunak confirmed the Conservative manifesto pledge to increase the primary threshold for Class 1 NICs to £12,570 from July 6 2022 – an increase of just over £3,000.
The NIC saving is worth up to £330 with a total saving in the 2022-23 tax year of £267, because the threshold increase only takes effect from July 6.
The decision to align the NIC thresholds with the income tax allowances and bands is a long overdue simplification to the UK tax system, but it does highlight that the effective rate of tax someone earning more than the personal allowance is 33.25 per cent.
An employed worker earning £25,000 will be £205 better-off next tax year because of the NIC threshold increase; someone earning more than £41,389 will be worse-off because of the impact of the additional 1.25 per cent NIC.
The self-employed were equally treated with the lower profits limit increasing to £11,908 in the 2022-23 tax year and rising to £12,570 in 2023-24. Class 2 NICs will not be payable where the self-employment profits are below these limits. A self-employed individual earning £30,000 will be £45 better-off next tax year.
As Sunak set his low-tax vision for the future, and in an unconventional move for a fiscal update, he pre-announced a 1 per cent cut to the basic rate of income tax from the 2024-25 tax year – it would not be surprising if a further 1 per cent cut was announced at a future Budget before the next general election.
It is worth remembering that the basic rate income tax is not all good news: pension contributions will generate less tax relief and charities will receive less through gift aid (but only after April 2027 through a transitionary provision).
And there are some stark truths behind all the tax-cutting rhetoric, with the UK tax burden at its highest level since the 1950s.
With the personal allowance and higher rate thresholds being frozen until the 2025-26 tax year, the point at which someone pays 40 per cent income tax will have only increased by £6,395 in 15 years (or just over £400 a year).
