The Spring Statement: what do the announcements mean?
Greater Birmingham Chambers of Commerce
The Spring Statement is an annual statement made by the Chancellor of the Exchequer to the House of Commons, providing Members of Parliament with an update on the overall health of the economy. As well as this, the Chancellor presents forecasts from the Office for Budget Responsibility (OBR) and an update on progress made since the Autumn Budget.
Though the Chancellor reported that the UK has surpassed expectations in terms of economic recovery, with GDP growing by 7.5% in 2021, his Spring Statement comes on the same day that inflation hit a 30-year high of 6.2%.
Given ongoing supply chain disruption, spiralling energy prices and instability in Europe, the OBR expect inflation to peak at 8.7% in Q4 2022. As well as this, the UK’s underlying debt remains historically high, despite predictions that it will fall to 79.8% of GDP in the 2026/27 financial year. Debt interest spending is due to reach £83 billion next year, the highest level in over two decades and nearly four times the amount spent on debt interest last year.
Unlike the Autumn Budget, in which a plethora of measures were announced spanning over seven policy areas, the Spring Statement contained far fewer commitments. Instead, the Chancellor outlined steps the Government would take to help families with the cost of living, boost productivity and growth, and ensure the proceeds of growth are shared fairly.
Tax and National Insurance
The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and self-employed people, will increase from £9,880 to £12,570 from July 2022, benefitting approximately 30 million people. From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 National Insurance Contributions (NICs).
The Employment Allowance will also increase from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year. From April 2022, up to 670,000 businesses will not pay NICs and the Health and Social Care Levy due to the Employment Allowance.
The Chancellor also announced the basic rate of income tax will be reduced to 19% from April 2024. This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland.
The measures build upon previous announcements from the Chancellor at the Autumn Budget, including: the freezing of the business rates multiplier in 2022/23; 50% Business Rates Relief for eligible retail, hospitality and leisure businesses in 2022/23; and the extension of the Annual Investment Allowance to March 2023.
Energy
The Chancellor announced a temporary cut to fuel duty for both petrol and diesel by 5p per litre for 12 months, taking effect from 6pm on 23rd March on a UK-wide basis. This is only the second time in 20 years that main rates of petrol and diesel have been cut.
Cutting VAT on energy saving materials from 5% to 0% for households in Great Britain from April 2022 will incentivise increased demand for energy efficiency measures, and once installed, help alleviate the rising cost of heating.
As well as this, the Government have brought forward business rates exemptions for renewable energy generation and storage technology by a year. From April 2022, those investing in eligible plant and machinery that classes as green technology – such as heat pumps and solar panels – will receive business rates exemptions. There is also a 100% relief for low-carbon heat networks with their own rates bill.
What are the Greater Birmingham Chambers of Commerce’s views?
Faced with a once in a generation cost of living crisis, businesses up and down the country were hoping the Chancellor would act decisively and tackle deep seated issues, such as rampant inflation, sky-high energy bills and stagnant investment.
Additional support for households struggling with energy bills is welcomed, but there was no equivalent scheme for businesses that would have greatly benefited from an energy price cap and additional grant funding. The Government’s energy security plan is expected next week, and thus businesses will be hoping for additional energy-related support. Currently, it is not looking too hopeful for a full-scale ramp up of low-carbon energy measures.
The Chancellor should be applauded for raising the threshold for NICs, which will benefit lower-earning self-employed people, enabling them to keep more of what they earn while continuing to build up National Insurance credits. As well as this, nearly half a million businesses will benefit from an increase to the Employment Allowance, with businesses able to enjoy a tax cut worth up to £1,000 each.
In addition, the fuel duty freeze will offer short-term relief for many – representing savings for households and businesses worth around £2.4 billion in 2022/23 – but is hard to reconcile with the Government’s longer-term commitment to sustainability.
Nevertheless, it was noticeable the Chancellor chose to ignore the plight of those firms that are still suffering from the long tail of Covid-19. Further reform of the business rates system along with delaying the rise in levels of VAT would have given much needed breathing space for those that are still faced with huge debts and overheads, as a result of the pandemic which have been directly exacerbated by the events in Ukraine.
The Chancellor was right to recognise the long-standing issues which act as a break on business investment and it’s heartening to see the commitment encouraging capital investment and greater uptake of R&D tax reliefs – we would urge the Chancellor to go further and expand the parameters of the Super Deduction Scheme to include digital assets as a starter for ten.
Based on the Chancellor’s announcements, it is clear that many businesses are left with more questions than answers and, in some cases, very uncertain futures given the huge cost pressures they are struggling to manage.
How can the Greater Birmingham Chambers of Commerce help?
As always, we will be working closely with the local business community in the coming weeks and months to understand what these announcements will mean for local firms. We will continue to lobby for support for those that are facing a hugely uncertain future.
For additional information relating to Covid-19 support mechanisms, please visit our Covid Support Grid.
Further information regarding sustainability and low-carbon support can be found on our Low Carbon Support Grid.