The government’s Spring Statement is set for March 23, 2022.
We already know of a few of the announcements, such as the controversial National Insurance tax rise and the end of super deduction. However, Chancellor Rishi Sunak is also expected to address other issues, namely the cost of living crisis.
It’s unlikely to be a cash-splashing extravaganza following increased spending during the pandemic. Nicholas Smith, director and head of tax at Duncan and Toplis, points to the latest public finance figures, suggesting that the government is on track to borrow less this tax year than was forecast. As a result, the Chancellor will have around £12bn more than he’d have anticipated in the autumn. “However, the government has long been wary of the ever-climbing national debt and the cost of the pandemic. And, more so than previously, ministers have a libertarian outlook which resists the idea of high-tax, high-spending government” he added.
We take a look at the areas which could be covered in the Statement on Wednesday along with wish-list-topping requests from businesses and organisations.
National Insurance rise
Let’s cover the dreaded one first: National Insurance Tax rise. The government plans to temporarily increase National Insurance by 1.25 per cent for employers, employees and the self-employed, although it’s being named as a health and social care levy. Unsurprisingly, a lot of businesses want the planned levy to be delayed or avoided altogether. A survey of 730 businesses, employing around 9,000 people, found that nine out of ten employers want the government to scrap its 1.25 per cent National Insurance rise.
According to a Make UK survey of almost 300 manufacturing firms, as many as three in five said the tax rise would have a moderate or significant impact on their hiring intentions. Almost three-quarters said they would pass on, or would be very likely to pass on, the rise in their costs to customers in the form of higher prices for their products and services.
Economists have also weighed in, warning that the rise could wipe out £24bn of growth over the next decade.
However, Sunak is reportedly considering wiping out the NI for the lowest-paid workers. He may do this by raising the threshold at which people start paying the tax. Depending on where he sets the threshold, this could mean that those who earn below the median £27,500 a year may be excluded from the rise. This move is being recommended by politicians and groups across the political spectrum.
Response to rising energy costs
Rising energy costs have been weighing heavily on business owners’ minds and they want support to cope with what are already challenging times. A survey of 1200 businesses by Lloyds Bank found that almost four out of ten businesses ranked help with energy bills as top of the wish list for government support. Purbeck Insurance have said they would like to see initiatives to help with rising costs such as a business rebate or special small business subsidies.
The Federation of Small Businesses (FSB) has called for the Chancellor to match the £350 rebate for households with an equivalent rebate on business rates.
Nicholas Smith of Duncan and Toplis added that another step for tackling the energy crisis could be to reduce the 20 per cent green fuel levy and 5 per cent VAT on energy bills. “While this would reduce bills in the short term, removing the levy would be controversial if the funding raised for green energy projects wasn’t replaced through other means” he acknowledged.
The end of super deduction
The end of the super deduction tax break will be coming to an end. The Confederation of British Industry (CBI) wants the Chancellor to make the super deduction permanent to boost investment.
Business rates reform and reduction have long been hopefuls on the Spring Statement and Autumn Budget agendas, but they’re seldom addressed. The only notable exception is reductions throughout the pandemic for retail, hospitality and leisure. This is set to change from the new financial year. The 2022/23 Retail, Hospitality and Leisure Business Rates Relief Scheme will provide eligible, occupied, retail, hospitality and leisure properties with a 50 per cent relief (down from the current 75 per cent), up to a cash cap limit of £110,000 per business.
Even with strong consumer spending figures in the first part of the year, pressures from inflation and rising business costs are going to restrict spending through the rest of 2022.
British Independent Retailers Association‘s (Bira) CEO Andrew Goodacre said: “There will be real pressure on consumer spending and we know that the costs of running retail businesses is rising at a faster rate than sales. Later this month the Chancellor will be making his Spring Statement and we are asking him to cancel the proposed increase in business rates and retain the amounts paid by business in 2021.”
Jobs and skills
Sunak could be giving an update on his Plan for Jobs which he introduced in 2020.
The CBI has concerns over labour and skills shortages. The group says the current training model is failing and wants to see the Apprenticeship Levy turned into a Skills Challenge Fund. They claim this would deliver both employer flexibility and high-quality training.
They also want to see the creation of an independent Council for Future Skills, which would “combine business action, skills policies and immigration to deliver a workforce fit for the 21st Century”.
IR35 (off-payroll tax)
Another unpopular move has been the IR35 rules introduced in April 2021. Dave Chaplin, CEO of tax compliance firm IR35 Shield, said:
“We would call for an extension to the soft landing of IR35 for a year given the struggles that many firms have faced implementing the new off-payroll rules.”
Fuel duty and alcohol duty
“There’s also the traditional ‘rabbit from a hat’; a crowd-pleasing extra announcement which the Chancellor will make to help the majority of people. Whether this will be fuel duty, alcohol duty or something else, it tends to be this which grabs the most interest on the day” said Nicholas Smith, director and head of tax at Duncan and Toplis.
This is true – there generally is an announcement about these duties and, with the cost of living crisis looming, any news could be more welcome in this announcement.
The Chancellor may well mention other issues on the day.
Smith added that, “While the immediate crises should be the focus of most people’s attention, it’s likely that the Chancellor will make further commitments for long-term spending on infrastructure, in-line with the government’s ‘levelling up’ agenda.”
Purbeck Insurance also suggest introducing further tax incentives to support small businesses. This could include increasing the annual investment allowance; supporting start-ups with a reduced rate of corporation tax (for certain turnover thresholds); and tapering of the NIC rate to encourage recruitment of young workers and apprentices. Todd Davison, MD for Purbeck Personal Guarantee Insurance, said: “Lending to small business is recovering according to the latest British Business Bank report but given the news that company insolvencies have doubled in February 2022, clearly the Chancellor should be considering a multi-pronged approach to give much-needed support to small firms now facing multiple cost issues.”