Chancellor shows creativity in UK Spring Statement
Chancellor Rishi Sunak began today’s UK Spring Statement by talking about the Ukraine war, saying that behind Russian President Vladimir Putin’s invasion, is a calculation that democracies are weak.
“This calculation is mistaken. What Putin sees as division, we see as debate. What he sees as chaos, we see as creativity.”
In many surveys carried out by iResearch Services, businesses and business leaders have expressed the importance of creativity in economic and commercial growth, innovation and thought leadership.
The Chancellor showed he could be creative, too, in introducing measures to help businesses and hard-pressed families from the soaring cost of living, exacerbated by Russia’s invasion of Ukraine.
iResearch Services Chief Executive, Yogesh Shah, says, “The Chancellor showed the same creativity today in setting out measures to please aimed at both businesses and families who wanted help to combat the soaring cost of living and inflation.
“However, with inflation set to reach 7.4%, a 30-year high by the end of the year, according to the Office for Budget Responsibility (OBR) and rapidly rising energy costs, despite the announced subsidy, it remains to be seen whether the measures are enough to bring real relief.”
in today’s (Wednesday) Spring Statement – in effect a mini-Budget ¬– in which Rishi Sunak promised “security” to businesses and families as well as stressing the importance of fixing the public finances.
Key measures announced in the Spring Statement:
A 5p cut to fuel duty - "the biggest cut to all fuel duty rates ever" from tonight until March 2023
The National Insurance threshold is rising by £3,000. From July 2022, people will be able to earn £12,570 a year without paying income tax or National Insurance - a £6bn personal tax cut for 30 million people which is worth over £330 a year to each employee.
In 2024, the basic rate of income tax will be cut from 20p in the pound to 19p.
The government will "reform" the generosity of tax credits on the money private firms spend on research and development.
Tax rates on business investment will be cut, with details coming in the UK Autumn Budget.
Employment Allowance will increase to £5,000 in April - a tax cut worth up to £1,000 for 500,000 small businesses. The new amount will come into place in two weeks.
Employment training is being reviewed to see if the apprenticeship levy – a tax on the wage bills of major companies introduced in 2017 to pay for skills training - is "doing enough".
0% VAT on energy-saving materials, including solar panels or heat pumps, for the next five years
The Household Support Fund - money for councils to support vulnerable households - doubled to £1billion from April.
The Spring Statement allows Chancellor Rishi Sunak to respond to the updated Office for Budget Responsibility’s (OBR) economic and fiscal forecast. It does not normally include major tax and spending decisions, but with so much changing in the world and on the financial front since the Autumn Budget, this was an exception.
Mr Sunak says he is mindful of the issue of UK debt. While he says the government has already taken difficult decisions with public spending, he points out that more borrowing is not "cost or risk-free".
Last month, the Office for National Statistics said that the national debt was £2.3 trillion. The Chancellor says the UK's underlying debt is expected to fall from 83.5% of GDP in the next financial year to 79.8% in 2026-27. However, the OBR says the UK's "fiscal headroom" could be “wiped out by relatively small changes to the economic outlook”.
In the next financial year, the UK is set to spend £83bn on debt interest - and so the Chancellor says he has to take "difficult decisions with the public finances".
Many UK business leaders had urged Mr Sunak to axe or postpone a planned 1.25 percentage point rise in National Insurance, which was due to kick-in in April. Instead, he raised personal thresholds to £12,570 – the largest ever increase in a basic rate threshold, and the largest single personal tax cut in a decade.
Concerning the UK economy, the OBR said it was too early to factor in the exact impact of the war in Ukraine. However, its "initial view" is that the UK economy will grow by 3.8% this year, down from the 6.0% growth forecast in last October’s economic and fiscal outlook. That is followed by 1.8% in 2023, down from 2.1% forecast last October and then 2.1%, up from 1.3% forecast previously, 1.8%, up from 1.6% forecast, and 1.7%, which is unchanged.
Tony Danker, Director-General of the Confederation of British Industry (CBI), said the economy needed a “spring in its step”.
The Institute for Fiscal Studies believes there is little justification for cutting the income tax rate while raising the NI rate. Its chief, Paul Johnson says it, “Drives further wedge between the taxation of unearned income and earned income.”
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