An “unusually high uncertainty” surrounding the economic outlook means we can perhaps expect a bigger package of measures in the Autumn Budget says Newport-based Kymin Financial Planners Managing Director Robin Hall.
Mr Hall was commenting after the Chancellor, Rishi Sunak delivered his Spring Budget.
After opening his speech with comments about Ukraine, he then commented that the Office for Budget Responsibility (OBR) has said there is “unusually high uncertainty around the economic outlook”
Currently, the OBR is forecasting growth of 3.8% this year (sharply down on its October forecast), followed by 1.8% in 2023 and 2.1% in 2024. However, there was some good news, the lower growth outlook has not affected jobs performance, with unemployment currently at 3.9% and predicted to be lower in every year of the forecast.
The Chancellor stressed that the Government was meeting its new fiscal rules, with both debt and borrowing as a percentage of GDP reducing over the period of the forecast. In cash terms, the OBR estimates that the Budget deficit will be £127bn in 21/22 and £99.1bn in 22/23. This is significantly down, however, on the prediction that borrowing would be £183bn in 22/23.
Although Rishi Sunak has benefited from higher-than-expected receipts in several areas, he has resisted calls for higher public spending.
The focus on the current cost of living crisis, it was no surprise to hear that the Chancellor’s first announcements addressed this directly, with an immediate fuel duty cut of 5p per litre, VAT relief for the installation of Energy Saving materials (ESM) such as household solar panels as well as targeted support to vulnerable households, with the Household Support Fund being doubled from £500mn to a total of £1bn, both from April 2022.
The Chancellor announced what he called “a principled approach to cutting tax” which was delivered as a separate 12-page document. Some of these measures would be delivered sooner, much of the Tax Plan would be delivered as part of the Autumn Budget later in the year. This would plan would, help families with the cost of living, create the conditions for higher growth and more fairly share the proceeds of that growth.
As part of this, from July 2022, the National Insurance threshold would increase to £12,570 to align with the income tax personal allowance, meaning that the first £12,570 of earnings would be completely tax free. This £6bn tax cut, would now mean that 70% of workers would now pay less National Insurance, even after the introduction of the Health and Social Care Levy from April.
He also announced there would be a cut in the basic rate of income tax, from 20% to 19%, by the end of this parliament in 2024. This would deliver tax savings for 30million workers, pensioners and savers, with the average taxpayer being £175 per year better off as a result.
There were also some ideas talked about taxation changes to encourage business investment which would take effect from the Autumn Budget in 2022 and April 2023, along with research and development tax credits for business. Currently UK companies invest just 10% of GDP each year, compared with 14% in our competitor countries – so our tax system doesn’t reward investment as much as other countries do. Until the Autumn Budget is announced these are, of course, merely ideas, but it was very clear from the Chancellor’s statement and subsequent documents that there would be further major announcements coming later in the year.
From April 2022, there is an increase in the Employment Allowance of £5,000, up from £4,000 currently, this is therefore a tax cut, worth £1,000 per employer, per year. This the Chancellor said would see 50,000 businesses taken out of paying NICs and the Health and Social Care Levy entirely.
The Government had already announced freezes on business rates for 2022-2023 from April, amounting to a tax cut worth £4.6bn over the next five years. The hospitality sector, meanwhile, which has been particularly impacted by the COVID pandemic, will benefit from a new temporary 50% Business Rate Relief.
He also announced that the green reliefs for business rates due to start in April 2023 would be brought forward to April 2022. These targeted business rate exemptions apply to “eligible plant and machinery used in onsite renewable energy generation and storage”, whilst a 100% rate relief applies to “eligible low-carbon heat networks with their own rates bill”.
There was one further plan for the future with reforms to the apprenticeship levy, as in the UK, just 18% of 25-64 years olds hold a vocational qualification, a third lower than the OECD average. We can expect an update to this in the Autumn Budget.
Rishi Sunak speech lasted for just over 40 minutes and in his closing remarks, he said that by 2024, “inflation will be under control, debt will be falling, and our fiscal rules will have been met”. Taxes would be cut; debt would be falling and public spending increasing – all part of a plan. “A plan to grow the economy, to level up and deliver the biggest net tax cut in a quarter of a century” he said.
However, the OBR sees inflation peaking at 8.7% and therefore expects real household incomes to fall this year by 2.2%, the fastest rate since comparable records began in the 1950’s.
So, given the uncertainty surrounding the conflict in Ukraine, and that both the Chancellor and OBR acknowledge the current uncertainty is “unusually high”, we can perhaps expect a bigger package of measures in the Autumn Budget.