Rishi Sunak’s spring statement was delivered against a backdrop of rapidly rising inflation, with the latest update at 6.2%. Businesses and individuals alike were looking for support from the announcement to try and navigate the cost challenges ahead.
The Government were keen to stress the resilience of the UK economy and the Office for Budget Responsibility is forecasting growth of 3.8% this year. It was also noted that unemployment is now predicted to be lower in the coming years than previously forecasted in the Autumn budget. Despite the positive unemployment figures, it was also announced that the number of people employed between now and 2027 is expected to be 400,000 lower than before the pandemic. This reflects the national labour shortages that have been seen in the last couple of years because of early retirements during the pandemic and lower numbers of workers arriving in the UK due to the pandemic and Brexit.
It was also noted that inflation will continue to rise and will likely peak at 8.7% in the final quarter of this year.
The statement set out limited steps to assist with the cost-of-living challenges now being experienced but stopped short of a delay in the planned national insurance increases on 1 April.
Fuel duty has been reduced by 5p per litre immediately until March 2023, which offers some relief to vehicle owners and should see some benefit for companies on logistics costs.
From July, the income threshold for paying national insurance will rise to £12,570 which will assist those on lower incomes. However, this benefit is diluted somewhat by no change to the 1.25% increase on the contribution rate. The decision not to delay the planned national insurance rate rise on 1 April means there is no support here for businesses struggling with cost inflation.
There was a longer-term pledge that the income tax basic rate would be cut from 20% to 19%, however, this is unlikely to happen before 2024 and is not going to have an impact therefore on the short-term cost challenges.
Not applying a windfall tax on oil companies making super profits in this period, which was proposed by Labour, does seem a missed opportunity to raise funds to go further to support those most affected by inflation and to bolster the UK economy to grow back quicker from the pandemic.
In summary, there was some good news in the economic forecasts and updates on employment projections. There were also some limited positive changes to assist with personal finances. However, most businesses, who are seeing unprecedented cost rises and uncertain trading conditions, are likely to feel the statement does nothing to help navigate the challenges they are now facing daily with cost challenges and labour shortages. It further highlights the lack of understanding the Government has of the current challenges being faced by UK businesses.