BDB Pitmans reflects on the Chancellor’s 2022 Spring Statement

Chancellor of the Exchequer Rishi Sunak has today delivered his Spring Statement to parliament with a rallying cry of ‘people, capital, ideas’. The Spring Statement is always one of the main fiscal events of the year but after two years of extreme uncertainty, Sunak’s comments are under more scrutiny than ever.

With economic ambiguity in the wake of the pandemic heightened by the war in Ukraine, the Government is under increasing pressure to help ease the burden of a sharp increase in the cost of living.

Sunak focused on a need to build resilient finances – he acknowledged the UK’s moral responsibility to support Ukraine but noted that the unprecedented sanctions on Russia and financial aid were not cost free for the British public, implicitly highlighting the three moves to tighten policy from The Bank of England since December 2021 and fears around energy bill and national insurance increases.

He said it was too early to know the full impact of high global inflation and supply chain pressures but the Government intended to support people. Off the back of this, he announced several key measures:

• fuel duty cut by 5p from 6pm on 23 March 2022;
• 0% VAT on energy-saving materials to allow homeowners to add solar panels or insulation to their homes;
• household support fund doubled to £1 billion via local authorities;
• National Insurance threshold raised by £3,000 from July 2022;
• employment allowance to increase to £5,000; and
• £5 billion Income Tax cut by 2024.

In line with hopes to get the public spending again, Sunak’s introduction of 0% VAT on heat pumps, solar panels and insulation incentivizes homeowners looking to combat rising fuel bills. Taxpayer-backed loans offered at low interest rates will encourage the public to undertake energy efficiency projects with the 0% reduction applying for the next five years. As a result of the Northern Ireland Protocol, the VAT reduction is yet to be applied.

Dr. Stuart Thomson, Head of Public Affairs at BDB Pitmans, commented on Sunak’s announcement:

‘The Chancellor’s Spring Statement is a clear return to the domestic agenda, despite his attempt to blame the Ukraine invasion for the current difficulties in the economy. The cost of living crisis will have a real impact on households across the country and looks likely to get much worse before it gets better. Sunak supported business throughout the Covid lockdowns and faced the choice of whether, and how, to support households. He chose to do so largely through changes to National Insurance thresholds. Sunak has also though been trying to set out his tax cutting credentials in recent months and the pre-announcement of a pre-election income tax cut was his proof. The Statement also provided a reminder that despite the challenges created by the Ukraine invasion, the PM’s personal position remains precarious. What the Chancellor announced, and the approach he set out, are part of his application for the role of PM, should it become available. Whether, in the face of the cost of living crisis, he has done enough remains to be seen. Instead we should expect more announcements throughout the year including at the Budget. The Covid crisis demanded continuous announcements, so will the cost of living crisis.’