Business and economic leaders are predicting what will feature in Rishi Sunak's Spring Budget in March as the UK's recovery from the Covid-19 pandemic is marred by the Ukraine crisis and the rising cost of living.
The Budget will set out plans for tax changes, financial support as well as updating on the state of the economy.
Rising fuel costs, inflation and higher food bills have featured highly in the public consciousness with price rises and supply issues also hitting businesses and manufacturers.
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Hospitality and retail businesses will be wondering if the VAT and business rate relief scheme will be extended beyond March 31.
And opponents of the National Insurance hike - a precursor to the Social Care Levy -due to come into effect from April 6 will also be hoping it will be delayed or scrapped given the household financial pressures workers are currently facing.
With local elections coming hot on its heels on May 5 2022, will the Chancellor look to reduce the burden on households?
We have collected insights from financial experts to indicate what may be included in the Spring Budget.
When is the Spring Budget 2022?
Rishi Sunak will deliver the Spring Budget on Wednesday March 23 2022 – just over a year after his last budget on March 3 2021.
He delivered his Autumn Statement in October, billed as a budget for the 'post Covid era' - the main points are outlined here.
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What will be announced by Rishi Sunak?
At the end of last year, the Chancellor asked the Office for Budget Responsibility, to produce an economic and fiscal forecast to be published on March 23.
Sunak will respond to the forecast setting out spending, debt, GDP, employment and wages.
He is also expected to address the cost of living crisis and reveal the latest figures for inflation and the recent interest rate rise.
The Chancellor announced in February a package of support measures. These include a £150 tax rebate for homes in bands A to D and £200 credit on energy bills to be repaid over the next five years.
John Endacott, head of tax at PKF Francis Clark, said Sunak will want the Spring Statement to be a 'low-key event' because he’s in a real bind, given the state of the Government’s finances.
He said: “On the one hand, he’s under pressure to do more to help households and businesses with soaring energy costs. The Resolution Foundation has estimated that real household incomes will fall by four per cent in the coming year – the sort of squeeze we’ve only seen around the recessions of the financial crisis, early 1980s and mid-1970s. Current events have also increased pressure on the Government to spend more on defence.
“On the other hand, the pretty awful state of the Government’s finances means any measures to address the cost of living crisis or help businesses are likely to be relatively small in fiscal terms – tens of millions rather than billions."
National Insurance
Business leaders are warning of the additional pressure of the National Insurance 1.25% hike. They are calling the Chancellor to abandon or delay the planned increase which is estimated will add more than £500 to the annual tax bill of a £50,000 earner.
But a last-minute delay to April’s planned increase in National Insurance would be damaging for the Government’s fiscal credibility, said Mr Endacott.
He said: "It’s too late to avoid the inflationary impact of it as wages and prices have already started rising in anticipation. It would also push the tax rise closer to the next General Election, when the Chancellor would no doubt prefer to be making some giveaways."
Tax hikes
Mr Endacott said that Tory backbenchers are unlikely to vote for any further take hikes - especially in light of local elections in some areas in May.
He said: "Taxes are already high and it’s hard to see the main taxes on income going up further. Sooner or later the Chancellor will have to look at taxing wealth more to balance the books, but Tory backbenchers are unlikely to vote for that at the moment.”
The British Insurance Brokers’ Association (Biba) is calling for a tax cut - arguing that the insurance premium tax nshould be reduced at a time when living costs are surging.
The standard IPT rate is currently 12%, but Biba argues it should be rolled back to 10%. IPT applies to general insurance policies such as home and car insurance and pet insurance.
It is a tax on insurers which filters through to the overall costs that customers pay for their policies.
Biba also said it wants to see full IPT relief granted for high-rise homes undergoing or in need of cladding remediation work.
Cyber insurance could also be made more affordable for small businesses, it added, by making dedicated cyber policies exempt from IPT.
VAT
Hospitality businesses are calling for VAT to stay at 12.5% instead of returning to 20% from April. They argue that customers hit with rising household bills will already be reluctant to go out for treats and hospitality businesses do not need the additional pressure of rising VAT along with a drop off in custom.
Trade organisation UK Hospitality has launched the #VATsEnough campaign:
Business Rates
Hospitality and retail businesses that have seen a reduction in business rates are expecting it to rise again from March 31.
But the FSB is calling on the Chancellor to reform the system. It wants a further 200,000 community small businesses in levelling up target areas to be taken out of the business rates system by increasing the rateable value ceiling for small business rates relief to £25,000, and extending a one-year relief on business rates increases linked to property investments in plant and machinery.
Fuel Duty
Hauliers have urged the Government to freeze fuel duty for a further two years as they face record fuel prices which they say are “wiping out” their profits.
The average price of diesel has topped £1.60 per litre amid soaring oil prices due to Russia’s invasion of Ukraine.
To ease the impact on the logistics industry, trade body the Road Haulage Association (RHA) has also urged ministers to delay upcoming changes to the use of untaxed red diesel by 12 months.
It called for fuel duty to be frozen for a further two years.
A planned rise in fuel duty was cancelled at the Autumn Statement because of pump prices being at their highest level in eight years.
Energy costs
The FSB has written an open letter to the chancellor calling on him to extend support with energy costs beyond households to micro businesses via the business rates system, and launching a Help To Green initiative to spur on-site renewable generation.
The threat to the wider manufacturing industry was brought home in a protest by steel workers outside Parliament on Tuesday, March 15.
They are calling for urgent support for their industry, warning that spiralling energy costs have led to production pauses, threatening job losses.
Workers from steel areas including Rotherham, South Yorkshire, Scunthorpe, Lincolnshire, and Port Talbot in South Wales were joined by MPs and trade union officials to demand urgent action during the protest.
Government borrowing
A recent Office for National Statistics report shows that that the public sector borrowed £146.8 billion in the financial year-to-December 2021, £129.3 billion less than in the same period a year earlier and £12.9 billion less than the official Office for Budget Responsibility (OBR) forecast.
Could the Chancellor use the spare £13 billion to help the most vulnerable?
IFS director Paul Johnson said that Sunak will have to decide whether to borrow billions more or allow households to face what could be the biggest hit since the 1970s.
He said: “Will he do more to protect households from the effects of energy prices which have risen even further in the last two weeks?
“If he doesn’t then many on moderate incomes will face the biggest hit to their living standards since at least the financial crisis.
“If he does, then there will be another big hit to the public finances."
Mr Endacott said that despite calls for more spending, it is worth remembering that the UK hasn’t had an annual budget surplus since 2001.
He said: "The £2.3 trillion public sector debt pile is still growing – and the cost of servicing that debt burden is going up. As the Chancellor has pointed out, a one per cent increase in inflation and interest rates would add around £23 billion to the Government’s borrowing costs."
Defence spending
As war rages in eastern Europe the Chancellor will also have to decide whether to allow defence spending to fall over the next three years, or again borrow to boost it.
