Chancellor Rishi Sunak is expected to deliver his spring statement on Wednesday 23rd March following the Office for Budget Responsibility’s economic and fiscal forecast earlier in the day.
Economists predict that 2021-2022’s overall deficit will be roughly £20 billion less than estimated, allowing for a little bit of wiggle room in the spring statement. But with increasing pressures to address the cost of living crisis, alleviate the economic uncertainty arising from the war in Ukraine, and support businesses at the very beginning of their post-pandemic recovery, what can you expect from this year’s spring statement? We’ve summarised some of the key predictions and discussions that are currently hitting the headlines.
National Insurance rise
A planned 1.25% increase in National Insurance is set to go ahead in April, which will be put towards a new health and social care levy. However, industry leaders are urging the government to delay the £12 billion rise stating that both businesses and households are already at breaking point trying to cope with surging energy prices, living expenses and rising inflation, which is already at a 30-year high and is predicted to peak at over 8% in the coming months.
Despite these astronomical pressures, both the Prime Minister and Chancellor have insisted that the National Insurance increase will still be going ahead, but as Russia’s invasion of Ukraine and its economic consequences continue to spiral, could the government be persuaded to make a u-turn? Could we see the rate adjusted as a compromise? We’ll have to wait and see.
Cost of living
April is set to be the start of the biggest cost of living crisis in decades as several tax changes and a 54% energy price cap increase come into effect. There are fears that energy prices could dramatically increase again from October too – potentially reaching £3,000 a year.
In response to this, the government has already announced a £200 rebate on energy bills and a £150 discount on Council Tax for those with properties that are banded A-D, although quite frankly these are unlikely to even scratch the surface. Will the Chancellor therefore announce further initiatives to support both businesses and individuals through these treacherous times? Many are calling for benefits to be uprated further and for the universal credit taper rate and income tax basic rate to be lowered. You can find out more here.
Online Sales Tax
The potential use of an Online Sales Tax, which will look to restore the balance between online and in-store retail taxation, was discussed during the Autumn Budget last year and since then a consultation has officially been opened so we’re likely to hear more about this in the upcoming spring statement. The consultation will run until the 20th May and will look at how and if the tax could be implemented and what the potential impacts or issues could be.
R&D tax relief
It’s recently been announced that the Chancellor is planning to overhaul the current Research and Development (R&D) tax credit scheme, going further than the measures announced in last year’s Autumn Budget. Part of his plan is to review whether the scheme can be better applied to large businesses, rather than being targeted towards SMEs which can prove costly, in the hope of boosting the UK’s lagging growth rate. It’s also hoped that a tax reform will increase investment and inspire businesses to invest more in training and R&D opportunities.
The main theme presiding over this year’s spring statement predictions is uncertainty as catastrophic worldwide events continue to exacerbate the country’s current economic turmoil. Will the Chancellor’s announcements therefore be influenced by global events? Or will he decide to sit tight and wait to see how things unfold before announcing new measures? We’ll keep you informed as soon as the spring statement is announced next week.