The HB view on the Spring Statement

The Chancellor’s Spring Statement was delivered yesterday against a backdrop of rising inflation and fuel costs. This was always going to be a tough one for Rishi Sunak, who last year had the (now seemingly less) tough task of delivering a budget a year in to the Covid-19 pandemic. Our clients are always keen to understand what the financial year ahead looks like, so we’ve broken down the key points of the Spring Statement – and how it relates to business – below.

The financial environment

Inflation is currently at 6.2%, set to rise to 7.4% later this year. Interest rates have risen again, from 0.5% to 0.75%. Borrowing is to become more expensive, which will have an effect on businesses looking to grow. Sunak is well aware of these pressures and has made attempts to help businesses through a tougher trading environment.

Fuel duty

This one, on the surface, is for all the car drivers who have filled up with increasing horror over recent months, with petrol prices really spiking after the outbreak of war in Ukraine. All businesses use fuel in some way though – for transporting their own goods to customers, ordering supplies, and pretty much anything that requires the movement of goods or people. In the Statement, Sunak revealed that fuel duty will be cut by 5p per litre, the largest reduction in history. This will reduce the cost of filling up an average tank, which has risen to £98.43 for diesel and £91.87 for petrol, by £3.30, according to the RAC.

Our view is that this is a nice touch to help a situation that is very much out of the chancellor’s hands. There is only so far the UK government can edit the price of fuel when it comes from a global market. We will have to see if Boris Johnson’s Saudi mission brings in a new supply of oil, though we do not expect fuel prices to decline any time soon, sadly.

Regardless of the fuel duty cut, businesses will see the fuel price increase cut into their bottom line, and prices will have to be raised to preserve profit. It will especially affect delivery, logistics and online retail firms, for whom delivery is a large part of their product offering. We will, of course, work with our clients to find a way to balance costs so that long-term sustainability and growth is achieved.

Baby you can drive my car (but only at 55mph please as it’s the most efficient speed for petrol consumption)

Zero VAT on energy-related materials

Such materials include solar panels, heat pumps and insulation. “A family having a solar panel installed will see tax savings worth over £1,000, and savings on their energy bill of over £300 per year”, Sunak told MPs. Wind and water turbines will also receive a zero VAT rate, in a reverse of the previous “red tape” imposed by the EU.

This action is more aimed at homeowners than businesses. Due to the increase in hybrid working, many companies have already saved large sums by downsizing offices and, consequently, paying less to heat them. Zero VAT couldencourage architects or existing landlords to incorporate greener heating/insulation methods into office buildings, but the effect of that will be felt years down the line, we would argue.

National insurance threshold increase

National insurance thresholds are to be increased in line with the personal allowance limit of £12,570, which is set to save 30 million taxpayers £330 each per year. This is a boon to many workers, considering the government announced a rise in national insurance last year of 1.25%, which will take effect from April. The chancellor has effectively increased and decreased national insurance at the same time.

Business rates discount of 50% for hospitality businesses

Coming into effect from 1st April, this is, in our view, the biggest positive change in the Statement for business owners in the hospitality sector. Hit hard by the pandemic initially, then given a little boost with Sunak’s ‘Eat Out To Help Out’ (remember that?!), then hit hard again during Christmas 2021, pubs and clubs will benefit from this temporary discount on business rates, which should allow them to recoup some of their losses from the pandemic (though government support was generous, as we learned from our work with the Hare & Hounds, Harlton).

We calculated that a café in Swaffham would save just over £4,000 over the year with this change. That is a useful sum for a business sector that often operates on small margins.

Dog days are over

Employment allowance to increase to £5,000

Sunak has delivered a £1,000 increase here from the previous £4,000. This constitutes a tax cut of £1,000 for up to 500,000 small businesses. Every little helps!

In sum

Overall, I believe this Spring Statement is aimed at supporting those struggling most with the cost of living. Small businesses will benefit the most from the new measures. We look forward to advising our clients on how to navigate this newly amended financial environment and make it work for them.