UK Spring Statement
On 23rd March 2022, UK Chancellor Rishi Sunak set out his Spring Statement. This was not intended to be a full budget, but did include a few announcements around tax cuts and measures to try and ease the cost of living crisis, as well as providing an economic update and setting out some of the Governments intentions around financial policy going forward.
In terms of the current economic context, there is of course unusually high uncertainty around our economic outlook, but the Office of Budget Response (OBR) now forecast growth of 3.8% for this year, growth of 1.8% in 2023, and of 2.1%, 1.8%, and 1.7% for the following three years. However, the cost of living is a real concern with inflation at 6.2% in February 2022 and the OBR predicting that inflation will rise further still, averaging 7.4% this year.
The Chancellor therefore announced 3 immediate measures to help with the increase to the cost of living:
- To help motorists, fuel duty will be cut by 5p per litre, the biggest cut to fuel duty rates ever. This will take effect from 6pm tonight and be in place until March 2023
- To help domestic households increase their energy efficiency, for the next 5 years homeowners will pay no VAT on energy efficiency materials including heat pumps, solar panels, or insulation
- As a form of targeted support, the Government is doubling the Household Support Fund to £1bn. Local authorities will receive this funding from April
The Chancellor also made several announcements around taxes:
- From July 2022 the National Insurance threshold will increase to £12,570 to equalise it with the threshold for Income Tax, claiming this is equivalent to a tax cut for employees of over £330 a year, and saving a typical self-employed person over £250 per year
- The Government have also today published a tax plan, setting out their approach to cutting and reforming taxes over the rest of this parliament
- By the end of this parliament, the Government intend to cut the basic rate of income tax from 20 to 19 pence in the pound – however, as income tax rates are devolved in Scotland, the Scottish Government will receive extra funding when this change comes into place, and it will then be up to them whether to implement the same cuts
The new tax plan also sets out tax cutting options on business investment and innovation, with final decisions to be announced in Autumn budget. These will aim to:
- Incentivize businesses to invest in training
- Incentivise greater business spend on R&D through reform of R&D tax credits
- Cut tax rates on business investment
Other announcements for businesses include:
- An increase in the Employment Allowance, which allows eligible businesses to reduce their employer National Insurance contributions. From April this will rise from £4000 to £5000
- Bringing forward an exemption on business rates for green technology including solar panels and heat pumps – this will now begin in April of this year
In terms of reaction from the Edinburgh Chamber of Commerce and the Chamber network, we feel the Spring Statement falls short of the action we have been calling for over the past few months. While there are some positive announcements that firms will welcome, it did not fundamentally address the huge cost pressures facing member businesses across the country – this is an agenda which we will continue to push on our members behalf over the coming months.
You can find more detail in the Government’s Business Support Factsheet here. The British Chamber of Commerce has also produced a useful Economic Summary Document and a Policy Grid outlining key measures and business impacts here.