Spring Statement 2022 Announced

The Chancellor (CX) delivered his Spring statement this lunchtime.

Essentially a ‘mini budget’, the Spring Statement sees CX set out the Government’s official view of the state of public finances and the economy and any changes to tax policy etc. As always, much more of the detail and implications will come out over the next few days, but for now we wanted to give you a snap, factual and confidential, summary and reaction.

• Government borrowing lower than predicted, but repayment costs at record levels.
• Official predictions show that inflation has risen to 7.4% as growth slows, and will remain under 2% until 2024.
• Income tax and fuel duty cuts now.
• Other business tax cuts trailed, but will have to wait for final decision in the Autumn Budget (likely October).

Context

CX is facing a difficult situation, partly of his own making. The wider economic context created by the (hopefully sustained) unwinding of Covid-related lockdowns in many parts of the world and the international economic situation, including the implications of the Ukraine conflict for raw material process, and ongoing implications of the Brexit deal for importers and exporters create an unhelpful backdrop. Additionally, CX’s already announced decisions to increase National Insurance contributions and other tax and policy levers are also driving inflation and depressing business confidence, and his own view of the role of the state within the wider economy will partly shape his decisions over where and how he will engage.

The (official) Office for Budget Responsibility states that inflation is currently at 7.4%, with further increases likely, and has pushed back predictions of growth(to 3.8% from 6.0% in 2022; 1.8% from 2.1% in 2023; and 2.1% up from 1.3% in 2024).

Whilst much of the public narrative is around the ‘cost of living crisis’ for individuals, pointing to rising energy and food etc prices, businesses are also facing marked pressures, with necessary materials (such as steel and cardboard) and staff (such as HGV drivers) difficult to find at any reasonable price.

Whilst there is some sense that the fiscal position for the Government is better than had been predicted (with lower borrowing than expected), some have argued that there is less headroom than there might appear giving what inflation will do to the cost of repaying existing debts.

• Fuel duty cut of 5p per litre until March 2023;
• VAT on domestic energy saving materials zero rated for 5 years (excluding Northern Ireland for now);
• (from July), increasing the starting point for National Insurance to £12,570, in line with the point where income tax begins;
• £1,000 increase in the Employment Allowance (offsetting smaller firms’ National Insurance payments); and
• Opening the second round of the Levelling Up fund.

• Potentially in the Autumn Budget, cutting tax rates for business investment, Apprenticeship Levy reform and reforming R and D Tax Credits; and
• from 2024, cutting the basic rate of income tax from 20p to 19p.