Spring Statement – a commentary
MARCH ’22
So, was Rishi Sunak’s Spring Statement a “mini-budget” or what it said on the tin?
The truth of the matter is it’s probably somewhere in between
Readers of a certain age will remember the term “mini-budget” from the Labour Chancellor of the Exchequer of the 1970’s, Denis Healy, who seemed to deliver them at his whim- and also the high levels of inflation and, by default, sensitive mortgage interest rates.
Sunak was under pressure to provide households with some relief from the rapidly increasing cost of living and delivered his Statement, somewhat coincidentally, two years to the day from when Prime Minister Boris Johnson announced the first Coronavirus lockdown.
The effect of Covid was mentioned by Sunak as still being a factor and Putin and Ukraine were also mentioned several times.
There was a bit of a “sandwich opening” with a predicted lower growth from 6% to 3.8% offset by a reduction in the unemployment rate before mentioning an anticipated average rate of inflation for 2022 of 7.4%
Sunak was then quickly into his stride in championing a 5p per litre reduction at the pumps to which drivers could rightly point out they were now, perhaps, paying around £90 to fill up a typical family car.
There was then an announcement that energy efficiency measures would be VAT-free.
Having announced that the Government’s underlying fiscal rules were being met, Sunak repeated his October 2021 Budget’s intention to reduce the tax burden by the end of the Parliament in 2024 by holding up a blue covered “Tax Plan” which he said would reduce tax and strengthen the tax system.
The Health and Social Care Levy was to remain, Sunak said, but he then announced a £3,000 increase in the employees’ National Insurance threshold from July to align it with the £12,570 personal tax allowance.
Sunak then turned his attention to business taxes and a review of Research and Development was targeted for the Budget and at which time, with one eye on the ending of the “Super Deduction” on 31 March 2023, tax reliefs on capital expenditure would also be reviewed after consultation with business leaders.
An increase in the Employment Allowance from £4,000 to £5,000 then followed before the Budget-like ending came with Sunak’s “rabbit from a hat” moment.
Announcing a reduction in the basic rate of tax from 20% to 19% by the end of this Parliament, Sunak seemed to forget that only last October he had frozen personal tax allowances and income tax rates through to 2026.
Did he do enough to buy himself some time for the next Budget? Probably, but the giveaways are outstripped by the forthcoming increases in household energy bills and that’s before higher food prices and mortgage payments are factored in.
Sunak could say that he had already warned people that there was a limit to what assistance he could give and that he had stuck to that script.
By Ian Kelly, Tax Partner. Please contact ian.kelly@daviestracey.co.uk with any queries.