Todays Spring Statement, bought with it many fiscal promises for businesses and low income families.
Although it is unlikely Rishi Sunak’s tax rate cuts will be making headlines for now, he has taken steps to protect low and medium income households from the rising costs of living. Furthermore, Rishi Sunak did promise a 1p cut in the rate of Income Tax in 2024 as part of a new longer term tax plan.
“Businesses will like the idea of a new Tax Plan, providing a long-term view of the fiscal landscape. This could help them to plan to make investments and reduce transactional pressures on their business activities. However, there isn’t much detail on what the plan will look like, just some promises to extend R&D tax relief and cut Income Tax, so we will have to wait and see.”
A number of new measures have been announced that will take effect next month, Richard Godmon Comments:
“With inflation heading for double digits, doing nothing now was simply not an option for the Chancellor politically. The decision to raise the threshold for National Insurance Contributions by £3,000 to £12,570 is a positive step, which means that the planned 1.25% increase, (due to take effect from the start of next month) will have a reduced impact on low earners.
“Cutting fuel duty by five pence is a significant step that will help businesses and households that have been struggling to meet the cost of rising petrol and diesel prices. The recent dip in the wholesale prices means that further market-driven reductions in fuel costs are also in the pipeline.”
To support small businesses in the retail, hospitality and leisure sectors, the Chancellor announced that the new Business Rates Discount, which is due to take effect next month, will be extended, allowing businesses to claim up to a maximum of £110,000.
“Many SME businesses in these industries are still struggling to get their businesses back on track, following the devastating impact of pandemic-related restrictions and changes in consumer habits. The Chancellor has recognised this and singled them out for additional support with additional rates relief.”
Reflecting on the overall impact of the Statement on cash-strapped households, Richard Godmon added:
“Many people were disappointed with the £9 billion package of support announced by the Chancellor in February to help soften the impact of domestic energy price increases. This Statement doesn’t offer much more – the new £500 million funding for household support funds to be delivered by local authorities, won’t go far.”
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Sector Specialists comments
Property and Construction
Rebecca Wilkinson, Property and Construction Sector specialist
Anyone hoping that today’s Spring Statement would include measures to assist the property and construction sector would have been disappointed. Only businesses involved in the supply of Energy Saving Materials (ESMs) such as solar panels and wind turbines will see some help towards reducing the cost of their products for customers, as these will temporarily become zero-rated for VAT purposes. Whether this will lead to increased demand for ESMs will remain to be seen.
The construction sector, like many sectors of the economy, is currently experiencing an unprecedented rise in costs due to the increased price of building materials and energy. In addition, labour shortages are limiting the speed at which construction projects, such as the building of new homes, can be carried out. For the housing market, the combined effect of increased costs and slow production is pushing up prices, as demand for new homes outstrips supply. House prices on average increased by around 10% in the year to January 2022 according to the ONS and the measures announced today will do little to slow this inflation.
Looking ahead to the future, Rishi Sunak has announced that a reform of R&D tax credits may be on the cards and is considering making the large corporate RDEC scheme more generous. There are no details at present, but construction companies involved in R&D may be able to benefit from increased tax incentives. Additionally it was announced that the Government would be consulting on ways to reduce tax rates for capital investment. Encouraging capital investment by reducing tax rates could be a boost for the construction sector, especially for those constructing or fitting out commercial properties. Further details should be announced in the Autumn Budget so until then we will just have to wait and see.