It’s not the first time in his tenure as Chancellor that Rishi Sunak has delivered a Budget or spending review amidst large scale financial uncertainty. And March’s Spring Statement was no exception.
With food, fuel and energy prices spiralling, inflation and the cost of living on the rise, and debt remaining at record levels after the pandemic – not to mention the situation in Ukraine – Mr Sunak faced the difficult balancing act of keeping spending in check whilst delivering some sort of financial respite to economically weary businesses and consumers. The pressure was on.
So, what did he announce?
Mr Sunak has tried to make it clear that he is keen to be a Chancellor that reduces taxes, which contrasts his pandemic-affected record to date. In his speech, he said he was unveiling a comprehensive tax plan which takes a ‘principled approach’ to cutting taxes over the course of the current Parliament.
He told the Commons that by 2024, when inflation is expected (and hoped) to be back to a more manageable level, the basic rate of Income Tax will be cut by a penny, from 20p to 19p. It will mark the first time in nearly 20 years that Income Tax has been reduced.
Mr Sunak also announced that the government would be cutting tax rates on business investment, more details of which he said would be provided in Autumn’s Budget.
Elsewhere, in a bid to encourage people to invest in the long-term energy efficiency of their homes, the Chancellor announced that for the next five years, homeowners will pay 0% VAT on energy-saving materials such as insulation, solar panels, and heat pumps. That’s down from 5% at present.
National Insurance Contributions
The controversial hike in National Insurance – announced last year to help ‘fund health and social care’ – will go ahead as planned, despite considerable pressure on Mr Sunak to cancel or postpone it.
The increase affects business owners, employees, and umbrella and gig economy workers alike, each paying an extra 1.25 pence more from every pound they’re paid, and the Chancellor was criticised for refusing to delay it.
However, there was some better news in this area, with the threshold for National Insurance contributions (NICs) set to increase by £3,000 in July 2022 – to £12,570 – providing some light relief for those at the lower end of the pay scale.
According to the Chancellor, this change, which comes into force from July, represents a ‘£6bn personal tax cut for 30 million people across the UK’. It’s estimated to be worth around £330 a year for those impacted. In real terms, those earning less than £34,000 a year will end up paying less in NICs than they do at the moment.
Reduction in fuel duty
With more and more ordinary commuters struggling to afford their daily trips to and from work – whether by car or public transport – one of the Chancellor’s main tasks when drawing up his Spring Statement was finding some way to take the edge off the increasing cost of fuel.
Prior to his statement, more than 50 Tory MPs publicly called for a cut in fuel duty, which stood at 57.95 pence per litre (plus VAT at 20%). Mr Sunak obliged with a temporary reduction of 5 pence per litre. That represents, he said, the ‘biggest cut to fuel duty rates ever’.
The reduction, only the second in two decades, was enforced immediately and will last until March 2023. That’s a full 12 months. Before motorists start rejoicing though, the cut will only slash £3.30 off the current cost of filling up a standard 55-litre vehicle.
Mr Sunak did though unveil a ‘£9bn plan’ to help nearly 30 million households pay around half of next month’s energy price cap.
After a uniquely challenging couple of years, the financial pressure placed on UK businesses remains considerable.
Following the pandemic, energy and fuel prices are causing perhaps the biggest headache for firms. Though loans, debts, cash flow concerns, inflation, wage increases, national insurance hikes, candidate shortages, and higher interest rates are providing pretty stern competition, it must be said.
Whether it’s production costs, the price of transportation, the cost of importing and exporting goods and services, or even just escalating overhead expenditures, inflation is hitting businesses hard. So, all eyes were on the Chancellor to see if he’d throw businesses a bone.
Well, not so when it came to national insurance. Whilst there was a significant lifting of the threshold for employees, there was no such increase for employers. So, what did change?
- The current £4,000 Employment Allowance – which affects small businesses’ national insurance bills – will rise to £5,000 from next month. That’s a tax cut of £1,000 for around 500,000 small businesses and has been introduced in a bid to help companies manage the rising cost of employment. It also means that from April 670,000 businesses will not pay NICs and the Health and Social Care Levy.
- Green technology, such as solar panels, will be made exempt from business rates from next month, which is hoped to be worth around £170m to businesses over the course of the next five years.
- From April next year, businesses in sectors such as AI and manufacturing will be able to claim tax relief on the storage of their data.
- Furthermore, leisure, retail, and hospitality businesses will receive a new 50% discount in business rates- worth more than £100,000.
- Speaking before the Chancellor’s announcement, the Prime Minister also insinuated that there may be something significant for businesses to look out for in the energy security packages due to be announced next week.
- Employment training in the private sector is also set to be reviewed, including an assessment of whether the operation of the Apprenticeship Levy is currently ‘doing enough’ to incentivise businesses to invest in the ‘right kind of training’.
Inflation & Growth
Prior to the Chancellor’s speech, inflation reached a 30-year high of 6.2% in the 12 months to February. And, it shows no signs of slowing either. With household budgets facing a generational squeeze and the cost of living rising much faster than wages, the Bank of England is warning of the potential for double-digit inflation by the end of the year. With the energy price cap going up next month as well, the average household fuel bill will increase by almost £700!
Inflation is not just a short-term problem, of course. Continued inflation tends to result in less public spending, reducing business investment and economic growth over time, while consumers face a struggle in the meantime.
Elsewhere, growth forecasts for the UK have been downgraded to under 4% for the year. It was previously predicted to be 6%. The country is also expected to spend over £80bn on debt interest alone this year.
Pensions & Benefits
Despite some optimistic predictions beforehand, there was nothing in Rishi Sunak’s speech about increases to state pensions or universal credit.
Universal credit is due to increase by more than 3% from April. But charities and food banks, many of whom are now asking for things like hot water bottles as well as food donations, were demanding that the government went further in the face of the cost of living crisis. That didn’t happen. And there were no changes for those receiving state pensions either.
Universal credit claimants had been given an extra £20 each week during the pandemic, but this was halted after the Budget in October.
In response, the government has tried to mitigate the impact on low-income households by doubling the Household Support Fund, which provides funding for councils to support vulnerable households in their area, to £1bn from next month.
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications.
His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette.
He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.