Chancellor Rishi Sunak announces Spring Statement as inflation reaches 30-year high
In his Spring Statement, Chancellor Rishi Sunak announced his mini-Budget, following the news that UK inflation had risen to a 30-year high.
Following the announcement from the Office for National Statistics (ONS) that the rate of inflation had risen to 6.2 percent in February, Sunak announced that the Office for Budget Responsibility (OBR) expects inflation to rise to 7.4% later this year. The OBR also said UK households are set to see the biggest drop in their spending power since records began in 1956.
That’s because of rising prices combined with the impact of tax increases.
As part of his Spring Statement, Sunak announced that fuel duty will be cut by 5p per litre for one year. The National Insurance threshold will also be increased by £3,000 to £12,750, whilst VAT will be scrapped on green home measures.
The Chancellor also announced there would be £500m for local authority hardship funds and that the employment allowance will be increased from £4,000 to £5,000. The basic income tax rate will also be cut from 20% to 19% by 2024.
Significantly, however, the government has insisted that there will be no change to the planned 1.25% rise in National Insurance contributions.
Les Cameron, Savings Expert at M&G Wealth, has a positive outlook on the announced cuts to fuel duty and VAT.
He comments: “At just under 58p per litre, fuel duty is currently accounting for around a third of your fuel bill and VAT takes it up to over half the cost of filling up your tank. As a key expense for many, it’s positive news that the government has acted in this area when many people are struggling.
“While there may well be some criticism of the measure for being inconsistent with the strive for “net-zero”, the government and other organisations will still have their eyes firmly on helping the planet, as evidenced by the Chancellor’s announcement of the zero rate for VAT on solar panels.”
Shachar Bialick, CEO and Founder of Curve, also thinks the Chancellor’s measures will provide some relief.
He says: “Raising the national insurance threshold – a £6bn personal tax cut for 30 million people – will provide a small piece of relief from the surging cost of living. With inflation now sitting at a staggering 6.2%, the Chancellor’s Spring Statement couldn’t have come at a better time.
“What’s important now is to support people through this critical phase of surging costs, heightened energy bills and price rises. People need to feel empowered and in control of their money. Being able to have a full view of your budgets and spending, across multiple accounts, will go a long way in empowering people to feel financially confident.”
However, Jane Parry, Managing Partner at PM+M, has a more mixed view of the measures.
She comments: “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.”
Research & Development
During his Spring Statement, the Chancellor also announced that the Research and Development (R&D) tax credits for UK companies are being reformed.
Reacting to the Chancellor’s plan to enhance Research & Development, Paul Christensen, CEO at Previse, says: “Simply saying that the UK is a global technology hub doesn’t make it one. For technology to have widespread impact, the Chancellor needs to begin by using it to create effective solutions for the problems small and medium-sized businesses face.”
“The low uptake of blanket measures such as ‘Help to Grow: Digital’ suggests that the government’s ‘one size fits all’ approach to recovery loans will not be enough to drive economic growth.
“Traditional finance for SMEs is clunky, difficult to obtain and expensive when it can be accessed. Using technology to modernise B2B commerce and provide firms with flexible and embedded financing could go a long way in ensuring that SMEs aren’t left behind as the economy seeks to ‘level up’.”
Camellia Chan, CEO and Founder at X-PHY, also comments on the UK’s commitment to R&D: “It is welcome news that today’s Spring Statement made good on its promise to support business innovation, by reforming R&D tax credits so they are more effective. This will help businesses contribute to the government’s Innovation Strategy and empower the UK to become a ‘science superpower’, as it champions emerging technologies such as AI. This is a potentially big deal, not just for the UK, but the rest of the world too, as this level of investment drives competition and innovation forward.
“The Innovation Strategy seeks to harness technology and foster an innovative business landscape. A workforce of diverse and skilled workers is needed to fulfil these ambitions for the UK. This is particularly necessary for the cybersecurity industry, in which there is a significant shortage of talent.
“The government must invest in skills training and education to make sure the country’s R&D plans succeed. Nurturing and investing in local talent is fundamental to closing the skills gap. Other countries have realised this before – in Singapore, we have initiatives from Enterprise Singapore and the Workforce Singapore Agency talent matching efforts, for example. The UK government understands how important R&D is for the health of the economy and must realise how valuable technology talent has become.”
Prior to today’s announcement, Njy Rios, Partner R&D Incentives at Ayming, said what she believes reform to the R&D tax credit scheme needs to cover.
“The reforms to the R&D tax credit scheme Sunak will announce today will have a bigger impact on the UK’s R&D landscape than any of the Government’s other initiatives to become a ‘science superpower’. Reform is definitely welcome since the scheme is 20 years old and hasn’t had any substantial changes for years, but it has to be done right.
“Recent comments suggest the Government is nervous of the scheme’s cost projections and may pivot the scheme towards big companies over SMEs. Judging by recent comments from Sunak, they might be drawing conclusions too rapidly. Not only is the data they have used to justify that the SME scheme is not generating enough investment very old (2017), but the Government should not be too concerned about comparing investment in other regions. The UK economy is very SME heavy, and the start-up culture means innovation is different. This makes comparisons difficult and means a reduction in SME support would have a bigger impact in the UK than elsewhere.
“It also seems counterproductive to reduce SME support due to increased costs. One of the Government’s main goals has been to increase uptake, so we should not backtrack now that people are finally taking up the scheme.
“Of course, fraudulent claims are a valid concern, as identified as a problem in HMRC’s annual report. Such claims do, however, make up a small minority, and it would be disproportionate to change the schemes at the expense of those using the scheme legitimately. The high-quality R&D of most applicants should not be overshadowed by some unscrupulous players.
“The R&D tax credit system may not be perfect, and it may not deliver the investment the Government hopes for in comparison to other OECD countries, but we know it makes a huge difference to our SME clients, who are more dependent on the scheme than large companies. It can make the difference between hiring someone for R&D or not, given that many SMEs use their R&D credit specifically to hire new personnel for future R&D.”
Education & Skills
In today’s mini-Budget, the Chancellor called out the deficit of UK technical skills and how UK employers spend just half the EU average on training their employees.
Kevin Hanegan, Chief Learning Officer at Qlik, comments on what is needed to close this skills gap: “In the Budget, the Chancellor cited the deficit of UK technical skills and how UK employers spend just half the EU average on training their employees. Unfortunately, this comes as no great surprise. Research from Qlik revealed the most commonly held belief among British business leaders is that it is an individual’s responsibility, over that of their current employer or educational institutions, to prepare themselves with the skills for the future workplace.
“This is despite 81% of C-level execs expecting that the skills requirement within their organisation will change significantly in the move towards the digital and data-led workplace, impacting the employability of those without these key skills. For example, 88% believe employees without data literacy – the skill predicted by employees and business leaders alike to be the most in-demand skill by 2030 – will be left behind in the future workplace.
“And this isn’t just a problem for the economy. This lack of skills investment will have a very real impact on workplace inequity. 76% of British C-level execs recognise the shift will put certain groups at risk of being left behind. Three quarters of whom believe working parents, neurodiverse employees and younger professionals that don’t have the same level of education as others on the global talent market are among the greatest at risk.
“More must be done to close this skills gap. UK employers are not yet doing enough to prepare their workforce with the digital and data literacy needed to succeed in the years to come. It is time for the Government to step in and ensure this skills gap is closed.”
There was also a lack of comments around education during the Spring Statement, which SJ Boulton, Global Curriculum Lead at Labster, comments on: “It was disappointing to hear so little on increasing investment for the education sector today. The impact of the pandemic is still being felt by schools and students across the country, and so we need to ensure future leaders can access education and training that inspires them.
“Education has experienced the start of a technology revolution, with the switch to virtual and hybrid learning methods. However, the attainment gap has widened at the same time. As a result, we need to be seeing an increase in government funding to prevent the skills gap from widening further.
“Investment in education technology can help plug the gap if embraced at a national level. The benefits of virtual learning – especially when combined with classroom teaching from our excellent teachers in the UK – provide an opportunity to bridge the skills gap, future-proof learning, and empower educators, businesses and individuals by opening the door to high-quality education, wherever they are.”
Property & Sustainability
Following the announcement that green additions to the home will be cut from 5%, Director of Benham and Reeves, Marc von Grundherr, commented: “The biggest personal tax cut in the last 25 years and an early election Budget for sure. With such headline-grabbing announcements, the lack of property focus will easily slip through the cracks.
“That said, environmentally-minded homeowners will welcome today’s announcement that VAT on green additions to their home will now be cut from the existing 5%. Of course, with inflation also being announced at 6% today, has this benefit already been negated?
“While great for the planet, solar and hydro energy outlets can be expensive to implement and take some time before the return starts to outweigh this initial cost and so it remains to be seen how meaningful this move will actually be.”
There was also a lack of measures announced for the property industry, which Director of Henry Dannell, Geoff Garrett, provided comment on: “Although there was generally no expectation that the property sector would feature in today’s Budget, some may have been hopeful of a breadcrumb or two from Mr Sunak in order to keep the market moving forward against what could be described as gathering financial headwinds.
“We’ve now seen a string of consecutive increases to the base rate and this is not only going to impact the monthly payments of those homeowners on variable rate mortgages, but it’s also going to reduce the bullish approach to borrowing that we’ve seen from homebuyers in recent years.
“The impact is likely to be a slowing in the rate of house price growth as buyers commit to lower borrowing amounts and sellers are forced to adjust their valuation expectations.”