Following the Chancellor’s Spring Statement announcement this afternoon, Jane Parry, PM+M’s managing partner, has provided her thoughts on what this could mean for businesses and individuals…
Rishi Sunak was under mounting pressure to use the Spring Statement as an opportunity to help some of the poorest in society after inflation hit a 30-year high, but in reality that didn’t materialise -despite the rate of Consumer Price Index inflation jumping to 6.2% in February, up from 5.5% in January.
The government had insisted in advance that it would not change the planned rise in National Insurance contributions so its steadfast commitment to that remains in place which I think is potentially a missed opportunity. However, the £3,000 rise in the NIC threshold to £12,570 from July will benefit 30 million people – most importantly the lowest paid workers – across the United Kingdom which can only be welcomed in the current climate, as is the newly announced cut to the basic rate of income tax by 1p in the pound that will come into effect in 2024.
The 5p per litre cut in fuel duty will no doubt help drivers, but a one-off windfall tax on North Sea oil and gas companies to support families with mounting energy bills would potentially have had more impact and positioned the government as being firmly on the side of working people. It risks being seen as out of touch, and it seems the chancellor’s position of ‘putting his arms around the economy’ at the start of the pandemic has now firmly shifted to a stance of doing as much as he feels he can. My fear is that working people will feel set adrift whilst the big energy companies are seen to be lapping up bumper profits.
The CBI has been lobbying the chancellor to turn his “super deduction” – which offers tax savings on business investment – into a permanent deduction to encourage firms to spend. That would help to offset the planned rise in corporation tax from 19% to 25% which is set to change from April 2023, but only consultations were announced today ahead of the main Autumn Budget. Reforms to R&D tax credits are hopefully a step in the right direction but more detail will be needed to truly understand what value they will deliver. I fear we may see the demise of the currently very generous SME scheme in favour of an enhanced scope of the RDEC scheme, which may be improved over its current levels but is still likely to be less generous to SMEs. What business needs is clarity and incentives, fast.
I did think the government tried to downplay the importance of the Spring Statement, citing the £21bn worth of measures – as well as the rise in the minimum wage from £8.91 to £9.50 an hour from April – that have already been announced to help with living costs this year and next. But energy and food prices are only going one way so time will tell if his approach costs him politically as the massive squeeze on UK households and businesses continues to intensify.