In contrast to the Autumn budget when the Chancellor of the Exchequer, Rishi Sunak, was relatively upbeat, today’s Spring statement summarised a more down beat assessment of the economy, delivered against the background of the invasion of Ukraine and worsening inflation. Under some pressure to deliver a broader range of measures than he may have wished for a Spring statement, he aimed for a balance between maintaining his fiscal rules while still managing a number of new tax announcements, as well as trailing considerations for the Autumn budget.
The Chancellor emphasised the link between the invasion and financial cost to the economy in the United Kingdom and other countries. The OBR has forecast unusually high uncertainty due to the conflict, with growth now at 3.8% this year followed by 1.8% next year.
While announcing that unemployment levels are now back to 3.9%, the real issue is inflation and the rise in cost of living, building on already high energy costs. Inflation is now 6.2% and the OBR now expect it to rise to 7.4% this year.
Motorists will benefit from a cut in fuel duty by 5p per liter until March next year from tonight.
Energy efficiency is to be encouraged through VAT relief for the next five years on solar panels, heat pumps and other measures to include wind and water turbines.
The Household Support Fund, which was introduced at the end of last year to help struggling households with daily food, utility and clothing needs, will have its funds doubled to £1bn which will be delivered through local authorities.
The Chancellor stressed that underlying debt is still forecast to fall, as is overall borrowing, meeting fiscal rules with, in his words, ‘a margin of safety’.
However, he tempered that with a warning that we must be prepared for public finances to worsen and the cost of borrowing to rise. This year the UK will pay £83bn in interest, almost four times the amount paid last year, constraining the amount for new spending.
He announced that overall tax would be reduced by the end of Parliament through a plan published today, focused on three areas:
Despite opposition calls to scrap the Health and Social Care levy, he has kept it while reducing taxes in other areas. The National Insurance threshold is to increase by £3,000 from July this year, fully equalising this tax with income tax thresholds for employees.
This will mean no tax will be levied on the first £12,570 of income, and the Chancellor predicted that 70% of employees will have bigger tax cuts than they will pay through the new levy.
He also announced that the Treasury will work with business over the summer to address a number of issues arising from the Autumn budget. The main issue raised was adult technical skills, with UK employers spending half of the OECD average on training, and there will be a review of the apprenticeship levy.
He suggested our productivity gap with the United States was down to slowing business innovation, which stands at less than half of the OECD average. R&D tax credits are to be reformed and expanded to include data, cloud computing and pure mathematics.
Our lack of capital investment will also be addressed in the Autumn budget through a cut in tax rates on business investments.
There was some help for smaller businesses through an increase in the Employment Allowance, to be worth an average of £1,000 per company.
Not mentioned in the main speech, the full published statement includes an extension of the on-going review of the Enterprise Management Incentive. The scope will be broadened to include Company Share Option Plans as a result of stakeholder responses that the difference in benefits between EMI schemes and CSOP rules are too restrictive. We responded to the initial consultation.
Finally, the Chancellor saved a headline announcement for the end of his statement, all be it one without a firm date for implementation. The basic rate of income tax will be cut by the end of this Parliament from 20 pence in the pound to 19 pence. This was, perhaps, predicated on the OBR forecast that by 2024 inflation will be back under control, our national debt will be falling and there will be a growing economy.