4 things you need to know about the chancellor’s spring statement
The spending reforms in the spring statement are described as a “good starting point” by some business groups, but they stress that more help is needed
The spring statement usually comes with slightly less fanfare than the autumn budget. However, with inflation topping 6.2% for the first time in 30 years and the war in Ukraine threatening to push this figure higher still, households and businesses were looking to the chancellor Rishi Sunak to pull the economic levers required to help with rising costs.
While there were several measures designed to help households, including lifting the National Insurance threshold and VAT relief for energy-saving devices, there were fewer to support businesses, despite many of them facing the same challenges.
Speaking in the House of Commons, Sunak said: “To lift our growth and productivity we need the private sector to train more, invest more and innovate more.” However, some business groups were left questioning whether the measures provide enough support for them to do so.
In February, the Confederation of British Industries (CBI) called for the super deduction – a tax break on business investment in certain types of equipment and machinery – to be made permanent. The policy is currently scheduled to end in March 2023, but CBI director general Tony Danker claimed that, “evolving the policy from short-term fix into long-term strategy will give firms confidence that government and industry are aligned”.
Sunak admitted that, once the super deduction ends next year, the tax breaks for capital investment “will be far less generous than other advanced economies”. Although he fell short of meeting the business group’s demands in his statement, Sunak did commit to replacing the super deduction with new tax reforms, scheduled to be announced in the autumn budget.
Neil Murphy, global channel chief at software company ABBYY, says: “Sunak’s announcement that the government will cut tax rates on business investment comes at a critical time. Businesses need reassurance that plans for investment and growth can go ahead.”
Review of the apprenticeship levy
Sunak also raised concerns over the fact that 18% of 25- to 64-year-olds hold vocational qualifications – a third lower than the OECD average – while UK employers spend just half the European average on training their employees.
Based on these figures, Sunak questioned whether current measures were proving effective in encouraging employers to invest in training and said that the operation of the apprenticeship levy will be reviewed.
In response, Institute of Directors chief economist Kitty Ussher says: “We have long been arguing for stronger tax incentives for workplace training, so we are pleased with the commitment to work with business to consider this in the autumn budget.
“There exists a market failure around upskilling and reskilling within the workforce, particularly for smaller companies, and this urgently needs correcting, so we will be urging the chancellor in the months ahead to provide tax incentives for retraining in shortage skills areas.”
Reform of R&D tax credits
The chancellor also called for the creation of “a new culture of enterprise”, explaining that the country’s low rates of innovation were causing productivity growth to lag behind other countries. “The amount businesses spend on R&D as a percentage of GDP is less than half the OECD average,” he said. “That is despite us spending more on tax relief than almost every other country.”
As a result, Sunak promised to reform R&D tax credits to incentivise greater spending in this area from business. These will also be expanded to include data, cloud computing and pure maths. The CBI’s Danker welcomed many of the chancellor’s promised reforms but questioned the length of time businesses will have to wait.
He says: “We stand ready to work with the chancellor on measures essential to transforming productivity such as capital allowances, R&D reforms and a revised apprenticeship levy. These measures lie at the heart of UK competitiveness. In reality, we cannot wait until October to get growth going. The government needs to start moving straight away.”
Small business support
With many small businesses struggling with the impacts of inflation, Sunak reiterated the government’s commitment to cut business rates. From April, retail, hospitality and leisure businesses will get a 50% discount on their business rates, which Sunak claims will save them up to £110,000 each. The employment allowance is also set to be increased to £5,000 from April. Sunak claimed that the tax cut would be worth up to £1,000 for half a million small businesses across the country.
Ussher, however, expressed disappointment that the changes to the employment allowance didn’t come alongside a review of the 1.25 percentage-point rise in employers’ national insurance contributions, which begin in April. She says: “Although the increase in employment allowance is welcome at the margin, it pales into insignificance compared to the rise in the main employers’ rate, which raises costs and pushes up inflation in already difficult times.”
The Federation of Small Businesses’ national chair Martin McTague, meanwhile, describes the spring statement as a “good starting point”, adding: “We are very pleased to see the chancellor adopting our top ask for this spring statement: uprating the employment allowance to help small employers with national insurance costs.”
He also welcomed a year-long cut to fuel duty of 5p per litre, which he claimed would help provide “crucial breathing space for our embattled small employers”. However McTague hopes that the autumn budget will address more of the challenges small businesses face in regards to inflation, increasing energy bills and hiring pressures.
He adds: “We’ve seen a VAT cut on net-zero investments for households today, which is good for small firms involved in their installation. But, a high street shop or local bar cannot access the same support that consumers do when dealing with the same energy supplier, and they should have access to the same assistance to reduce energy use and support the move to net zero.”
Other previously announced schemes, including a government subsidy on ‘mini-MBAs’ and a 50% discount for businesses investing in new software, were also referenced as part of the government’s SME support package.