Head of Research at Greater Manchester Chamber of Commerce, Subrahmaniam Krishnan-Harihara (pictured), gives his reaction to the Chancellor's Spring Statement.
"Rishi Sunak might feel that he often has his work as a Chancellor cut out. When Mr Sunak stood at the dispatch for his budget speech just over two years ago, the Covid-19 pandemic was in the process of becoming the issue to deal with. If the backdrop to his Autumn Budget in October 2021 was fear of inflation and increasing cost of living, these two are the issues to tackle at the moment. With inflation at yet another historic high of 6.2%, and prices for energy and commodities soaring, it was inevitable that the Chancellor had to introduce measures to ease the pain on both businesses and households.
"In his speech today, the Chancellor confirmed the much-anticipated cut to fuel duty. It would not have been a difficult decision to make. Fuel duty has been frozen for over ten years and although it was widely expected to go up in 2021, the Chancellor continued the freeze and has now cut fuel duty. The 5p cut for 12 months announced today may be significant in fiscal terms. For the average household, it may not offer much respite, especially if crude oil prices remain high or indeed increase further. There were calls for a 5% reduction in VAT on fuel. Relative to the 5p cut in fuel duty, a VAT cut would have further reduced prices, but the Chancellor has opted to not do that meaning VAT proceeds will be higher if oil prices increase further.
"Environmental groups have argued against the cut in fuel duty because they fear it could increase personal car use and contribute to climate change, but they are sure to welcome the VAT cut on green energy products such as solar panels and heat pumps. In a marked reference to the "benefits" of Brexit, the Chancellor claimed that the reduction was made possible because the UK is not bound by EU rules on VAT. No doubt, this is a theme prominent members of the government will be keen to belabour. Elsewhere, Brexit is having a real impact on businesses because it has caused some supply chain disruption and affected UK exports.
"For many businesses, the cost of employment is already high. The Chamber's Quarterly Economic Survey results show that wage inflation has increased significantly in the last year. Combined with higher input prices, the imminent increases in National Insurance contributions and the rates of National Living Wage will put further pressure on cashflow and margins. Cancelling the proposed increase to NI contributions would have brought relief to both businesses and workers. The Chancellor did not heed calls to cancel the increase in NI contributions, choosing instead to raise the threshold for NI contributions to £12,570. This is a progressive measure and goes beyond what many economists were expecting. This measure brings the NI threshold to the same level as the tax free personal allowance and could save lower and middle income workers up to £330 per year in tax. Set to come into effect in July, the signalling behind the measure is that it increases disposable income and contributes to higher consumer spending. In reality, increased payments under the Health and Social care levy will offset some of the savings from the higher threshold.
"Businesses will also welcome the increase in Employment Allowance by £1,000 to £5,000, a move that will take more small businesses out of paying both NI contributions and the new Health and Social Care levy. Alongside these measures, Mr Sunak also announced a new Tax Plan built on three pillars: Capital, People and Ideas. Definite details are not yet available on this plan beyond restating messages on the productivity benefits from business investment, employee training and R&D. As part of this plan, and as a definite pre-election giveaway, Mr Sunak plans to cut the basic rate of income tax to 19% from 2024.
"Since his first budget speech, Mr Sunak has said that he will do 'whatever it takes' to support households and businesses through crises and the government will argue that the package of measures announced today, following on from support provided during the Covid-19 pandemic, are in the 'whatever it takes' category. The details behind the announcements present some omissions and speed bumps ahead. On energy prices, there is no additional support available. With energy bills expected to surge next month, it will be a blow to household budgets and rein in consumer spending. Simultaneously, the Chancellor has again committed to prudence in managing public finances, an instinct which was in display today when he chose to not utilise the full headroom he was handed by the surprising downward revision in public borrowing. The need for this delicate balancing act between easing the pain from increased cost of living, supporting businesses and lowering taxes while also wanting to balance the books will repeatedly manifest itself as a fiscal dilemma in the next 12 - 24 months."