The Spring Statement 2022 was announced on 23 March – an historic date in its own right as exactly two years since we were all asked to stay at home.
What of the new world now we are all out and about again? Whilst the speech was brief, Rishi Sunak stated boldly that the “government’s goal is now to reform and reduce taxes” and to this end, he has drafted ‘The Tax Plan’.
The chancellor set this firmly against the backdrop of current world events and the resulting higher than expected global energy and goods prices which have in turn led to an increase in the cost of living in the UK. In addition, he stated that the approach to delivering this is guided by the core principle that a prudent level of headroom must be maintained against the fiscal rules of debt continuing to fall and no borrowing for day-to-day spending.
The tax plan focuses on three strands of principle:
- helping families with the cost of living
- creating the conditions for private sector led growth, and
- sharing the proceeds of growth fairly with working people.
This plan promises to drive improvements in living standards and to support the levelling up agenda across the UK. We can expect some of the detail to unfurl in due course putting meat on the bones of the three areas. For now, we have a few starters.
Helping families with the cost of living
Within this area is the overall package of changes around Universal Credit, help with energy bills and the freezing of alcohol and fuel duties. The health and social care levy is mentioned with a slight relief for some in the form of changes to the National Insurance thresholds. Mark Baxter comments further on this.
Creating the conditions for private sector led growth
The government considers that a new culture of enterprise is essential to drive growth through higher productivity. It is thought that stronger growth in productivity will drive improvements in living standards and will support levelling up across the UK.
The government stated objective here is to create the conditions for the private sector to invest more, train more and innovate more. To this end the areas in focus are:
- Capital – a suite of plans to encourage business investment around capital allowances in various guises relating to different asset classes (these are designed to take over from the Super Deduction introduced in last year’s budget)
- People – the amount UK companies spend on training their employees remains relatively low and the government’s ambition is to encourage greater levels of private sector investment in employee training. The Apprenticeship Levy is being increased and there will be a review of the scheme in general
- Ideas – there is no doubt that the government has an important role to play in supporting science and innovation. Measures are being put in place in terms of areas such as a visa regime to attract highly skilled and entrepreneurial individuals from across the world. R&D relief plays a significant part in this area and improvements in the availability of the relief are being considered alongside a drive to tackle abuse
Sharing the proceeds of growth fairly with working people
The punchline is that there is a future benefit coming our way which is the first cut in the basic rate of income tax in 16 years. The rate of basic rate income tax will reduce from the current rate of 20% to 19% from April 2024.
The intention is to confirm plans for reforms to reliefs and allowances ahead of 2024, but there is of course a caveat in the detail of the plan – that this will go ahead provided the fiscal principles are met in future. So do not spend those savings just yet!