Spring Statement Analysis
The Chancellor announced several measures of note in the Spring Statement, detailed below:
The Spring Statement comes at an acute time for the Chancellor due to the rising cost of living which is set to continue throughout the year. While largely driven by factors beyond the Chancellor’s control, particularly global shortages in key commodities as a result of the war in Ukraine, the cost of living crunch has led to political pressure to take action to reduce the impact on consumer costs.
In responding to this challenge, the Chancellor’s immediate actions are to raise the threshold for paying National Insurance immediately to £12,750 (although not delaying the increase), and a 5p per litre cut to fuel duty. In an effort to burnish the Chancellor’s credentials as a ‘tax-cutting’ Chancellor he also announced publication of a tax plan outlining the Government’s overall commitment to taxation policy and committed to cut income tax in the 2024 Spring Statement. He also announced immediate removal of VAT from energy saving materials.
Additionally, the Chancellor also indicated he believed increased productivity would be essential to long-term growth, and targeted the growth of high-tech, knowledge intensive activity. Today, he announced changes to R&D tax relief and promised further improvements to incentivise private sector spending on R&D in the Autumn, such as Solvency II reforms.
Beyond this, there were few announcements in terms of new or changed departmental spending.
The Shadow Chancellor argued that the Spring Statement was disconnected from the reality of the economic situation, highlighting in particular the Labour Party’s call for a windfall tax on oil and gas producers.
Overall, with inflation due to average 7.4% this year, and peak at over 9%, it is not clear if the Spring Statement is going to prove to be a sufficient response to this challenge – particularly for businesses, which benefit from few of the immediate measures announced. More action to help businesses with energy costs will reportedly be in the forthcoming energy security plan, which may ultimately prove to be the more consequential announcement.
Energy, infrastructure and the environment
- Fuel duty will be cut by 5p per litre until March 2023, taking effect immediately.
- For the next five years, homeowners having energy saving materials installed (such as solar panels and heat pumps) will no longer have to pay any VAT.
- Further measures to reinforce long-term energy security will be announced by the Prime Minister in “the coming weeks”. This will include measures across hydrocarbons, nuclear and renewables to support energy resilience and security while delivering affordable energy to consumers.
- The Chancellor confirmed the Government will proceed with its previously announced package to mitigate the impact of rising energy prices, including a reduction to council tax for most homes and a loan scheme which will reduce energy bills this year by £200 for each household.
Investment, R&D and Technology
- R&D tax relief will be extended to cover pure mathematics and cloud computing, with the aim of specifically growing sectors like the UK’s AI ecosystem.
- More broadly, he committed to make R&D tax credits will be reformed, and made more generous, though without much specification.
- He announced that some overseas R&D activity would also now be eligible for relief, providing it met certain criteria on its necessity.
- The government is continuing the review of R&D tax reliefs and further announcements will be made in the autumn.
- The Chancellor confirmed the Government will “consider” whether the Apprenticeship Levy needs to be reformed to incentivise business investment in training and skills.
- The Chancellor announced publication of a Tax Plan outlining the Government’s overall approach to taxation policy.
- He reiterated that the increase in national insurance will continue, but announced that the threshold for employees (though not employers) paying national insurance will be raised to the same level as income tax, £12,570 per year.
- He also pledged to cut income tax in the Spring Statement in 2024.