Taking place against the backdrop of the Russian invasion of Ukraine, and the subsequent sanctions imposed on Russia by the UK and its allies, the Government has argued that these factors "will inevitably have an adverse effect on the UK economy".
In particular, the country is seeing rises in inflation and significant uncertainty in the economy. Most notably, higher than expected energy and goods prices have led to an increase in the cost of living in the UK.
Spring Statement at a glance
The policies in the spring statement with the largest financial impact were:
Increasing the primary threshold above which national insurance contributions start to be paid, from £9,880 to £12,570 from July 2022.
Reducing the basic rate of income tax from 20% to 19% from April 2024 (annual cost £5.3bn in 2024/25, increasing to £6.0bn in 2026/27).
A temporary cut in fuel duty of 5p per litre for 2022/23 (cost £2.4bn).
An increase in the household support fund of £500m for 2022/23.
An increase in the employment support allowance from £4,000 to £5,000 (cost £420m to £440m per year between 2022/23 and 2026/27).
Investments in improved compliance and fraud reductions in both the tax and benefits systems. Together, these are expected to generate £510m in 2022/23, rising to £1.3bn in 2026/27.
State of the economy and public finances
The OBR reduced its forecast for GDP growth in 2022 to 3.8%, down from the 6.0% given in the October 2021 budget.
The economy is then forecast to grow by 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026.
The annual inflation rate was 6.2% in February and is likely to peak at 8.7% in the final quarter of 2022.
The unemployment rate, as reported by the ONS, is currently at 3.9%. This is lower than its pre pandemic level although there is a 493,000 fall in total number in employment. A weaker labour market participation has seen a rise of 643,000 of those not in employment nor seeking to work.
The latest figures from the ONS state that the deficit was £177bn in 2021, a fall from £270bn in 2020 but an increase of £47bn prior to the pandemic.
The government is forecast to spend £99bn in the next financial year, £16bn more than forecasted in October 2021.
Fuel, energy and living costs
Fuel duty will be cut by 5p per litre until March 2023.
Homeowners installing energy-efficient materials such as solar panels, heat pumps, or insulation will see VAT cut on these items from 5% to zero for five years.
Local authorities will get another £500m for the household support fund from April, creating a £1bn fund to help vulnerable households with rising living costs.
The energy bills rebate package was also costed in this statement, the package consisting of two elements: First a one-off council tax rebate of £150 to all households in bands A to D in April 2022. Second, an up-front discount of £200 in energy bills in 2022, repayable in five annual £40 instalments from 2023. This is expected to cost £9.1bn in 2022/23, then lead to an exchequer gain of £1.2bn over the following five years.
The OBR forecast that energy bills are set to rise another 40% in October if energy prices remain as high as the markets expect.
Taxation
The income threshold for at which point people start paying National Insurance will rise to £12,570 in July, which Mr Sunak said was a tax cut for employees worth over £330 a year.
Mr Sunak pledged to cut the basic rate of income tax from 20% to 19% from 2024
The Employment Allowance, which gives relief to smaller businesses National Insurance payments, will increase from £4,000 to £5,000 from April 2022.