Spring Statement 2022: Knill James Tax Partner Mike Chapman comments

Is it a statement or a budget? It's rather difficult to tell but we can all agree that there's been a suspension of normality over the last couple of years and the usual order of events has gone out the window.

The sequence of Spring Statement followed by Autumn Budget was halted in 2019 when the November Budget was cancelled ahead of the December 2019 election, promoting the 2020 Spring Statement to full Budget status.

The onset of the pandemic then led to statements by the Chancellor in both the Summer & Autumn of 2020 (without the hint of a Budget), followed by a full Budget in the Spring of 2021. Then in October last year we had a hybrid called the 'Autumn Budget and Spending Review 2021'.

Does this latest Spring Statement herald a return to a Spring Statement/Autumn Budget pattern? Perhaps so, given the sparsity of information available on the HMRC website and the disclosure that many important business tax announcements would be dealt with in the Autumn.

So what can we glean from Rishi Sunak's speech? Clearly the spectre of high inflation looms large. Increasing global demand following the easing of Covid restrictions had already created supply problems, but these have been exacerbated by Russia's invasion of Ukraine and the resultant pressures on energy and food prices.

The Bank of England now predicts inflation will rise to around 8% this Spring and maybe higher later in the year. This is the highest that UK inflation has been for over 30 years. Even if it returns to 2% as predicted in a couple of years' time, the Chancellor has recognised that measures are needed to dampen the short-term impact of rising prices on consumers, especially the worst-off.

The principal short-term measures announced to counter inflation, including their costs to the Exchequer in 2022/23, were as follows:

Measure

2022/2023 Cost £Billion

Increase in NI annual thresholds (effective July 2022)

6.250

5p per litre reduction in petrol and diesel duty

2.385

Energy bills support package (originally announced in February)

9.050

Employment Allowance increase to £5,000

0.425

VAT relief for energy saving materials

0.045

Business rates green reliefs

0.040

Total:

18.195

The increase in the NI annual thresholds is welcome and partly aims to address criticism that the Health and Social Care Levy NI rises will disproportionately affect the lower paid.

Given the current pressures on the economy, perhaps the most surprising (and welcome) announcement was the intention to reduce the basic rate of Income Tax from 20% to 19% from April 2024, leading to an annual loss of revenue to the Government of approximately £5bn per annum. Mr Sunak was at pains to say that the measure was 'fully costed and paid for', suggesting that the post-Covid economic forecasts and lower than expected public borrowing this year have given him far more wriggle-room than expected.

Business tax payers will have to wait until later in the year to get details of the proposed changes to the capital allowances and R&D relief regimes. Given the pointed remarks made by the Chancellor on the level of R&D undertaken in the UK and its impact on productivity, it seems likely that the R&D tax credit regime will become decidedly more generous.

Whether this was a Budget or simply a Statement, what conclusions can be drawn? Clearly there was an element of 'short-termism' to try and lessen the impact of inflation on the electorate over the next two years. Large tax hikes - in NI, dividend and corporation tax - were announced last year, so maybe the Chancellor saw no need to pay for increases in current spending with more tax rises?

To answer that, HM Treasury's Policy Costing document is always very useful for discerning the impact of new policies on government fiscal revenue streams. Tucked away in that document is a page benignly entitled: 'Student finance: changes to fee caps, loan terms and eligible courses'. This sets out changes announced in February to 'tackle the rising cost of the student finance system to taxpayers...'. These will bring in a whopping additional £32billion of revenue over the next five fiscal years, with over £11billion in 2022/23 alone. No wonder the Chancellor felt able to appear more generous in other areas!

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