4 things you need to know about the chancellor’s spring statement

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.

Investment incentives

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.