Spring Statement 2022 – Out of Covid and into a Cost-of-Living Crisis

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If there is one job you would not want at present, it is that of the Chancellor, Rishi Sunak, with the Spring Statement looming on Wednesday you have to wonder what is in store? At a time when we were all looking forward to the end of Covid disruption, and business returning to more normal trading, it feels like our hope is premature as we face significant rises in the cost of living, extraordinarily high energy increases, fuel prices at the pump increasing weekly, and additional calls to increase our defence spending too.

It has been reported in the Financial Times that the Chancellor is preparing to face pressure from the PM to offer new help to households while balancing the fears that inflation could rise to 7% in May. There is little doubt that the cost-of-living crisis is having an impact on families, with higher food and fuel prices, but having already announced £9bn in support packages to help UK Households with various schemes – to mixed reviews – it looks unlikely that there will be any more financial support offered at this stage.

For business, we hear leaders are calling for a delay to the 1.25% National Insurance increase despite fears that the treasury is firmly against this. In the Chancellor’s view the most sustainable way to secure and improve living standards is by boosting economic growth. Not a view that is shared by many business owners and individuals.

Whilst it has long-been announced that from 1 April 2022 Making Tax Digital for VAT will be compulsory for all VAT registered businesses, we think that for many yet to commit, there could be some leeway offered in the Spring Statement, perhaps confirming a possible deferment, or that businesses will be allowed to continue to submit VAT Returns as normal for a period throughout 2022.

Following an extensive review, we anticipate a reform to the R&D tax credit regime, but it is likely this will be heavily focused for SMEs.

We also hope the government will look at options to increase tax incentives on capital spend. The super deduction scheme ends next April 2023 and AIA reducing back to £200k so we expect an indication of what these will be replaced with, retaining the increased AIA or something more substantive? There is certainly no suggestion the Chancellor would reduce the headline rate of corporation tax, and given the cost-of-living crisis this would likely be an unpopular move when he is resistant to removing the increases in National Insurance.

With many local authorities increasing their council tax bills from April 2022, and the Covid-19 discount on business rates drops from 66% to 50% on 1 April, plus a new Plastic Packaging Tax due to come into force from 1 April 2022 - which could affect the price of food – the outlook for business owners and household alike for the short term, is not the rosiest. Whether the Chancellor heeds the pleas of extra support or sticks to his plans will all be revealed on Wednesday...