On the day inflation hit a three-decade high, chancellor Rishi Sunak delivered a spring statement light on action but heavy on promises as the cost of living crisis continues to spiral.

Rishi Sunak on Downing Street, March 2022

Source: Number 10

Sunak’s speech came against the backdrop of inflation hitting 6.2% in February – the highest rate for more than 30 years. While the chancellor said the UK has a “moral responsibility” to impose sanctions on Russia over its invasion of Ukraine, these actions are not “cost-free” and present a “risk to our recovery”, in particular when it comes to the cost of living.

The chancellor unveiled four main tax cuts designed to help people with spiralling costs and dwindling standards of living not seen since the Office for National Statistics first began collating data in 1956/57.

While the steps will go some way to alleviating the pressures being felt by consumers, Sunak insisted taking more radical steps – such as scrapping the 1.25 percentage point increase in National Insurance planned for April 1 or windfall taxes on energy companies – would put the UK at risk of further financial harm. 

His statement was light on measures to help businesses deal with their own surging costs as a result of the crisis. While the vast majority of businesses enjoyed Sunak’s support packages during the pandemic, many will feel the chancellor should have offered more by way of support for the current crunch. 

Cuts to fuel duty

Flling up car at petrol station

Supermarkets have committed to passing on the fuel duty cut to consumers

One of the first measures Sunak announced to ease the cost of living crisis for consumers was an immediate 5p cut to fuel duty. The chancellor hailed the measure as “the biggest cut to all fuel duty rates ever”. 

The RAC estimates the move will shave around £3 off the cost of filling a 55-litre car. Asda and Sainsbury’s have already committed to passing on the fuel duty cut to consumers at the pumps, reducing prices by 6p per litre. 

Lobbying group FairFuelUK welcomed the move, saying it will take some of the pressure off of logistics firms and supply chains by lowering fuel bills. 

However, the Road Haulage Association said the chancellor did not go far enough to support larger businesses. It said the UK has the highest fuel duty in Europe and has reiterated calls for a 15p per litre fuel rebate for “essential users” such as hauliers and coach operators.

The 5p cut to duty could, however, help to allay fears that consumers will turn their backs on travelling by road as the cost of refuelling their cars escalates. There are concerns that the rising price of running a car could force hard-pressed consumers to stop driving into city centres for work or leisure activities, or to other parts of the UK on domestic holidays – all of which would impact retailers.   

National Insurance and income tax

Although Sunak stopped short of scrapping the 1.25 percentage point increase in National Insurance – a U-turn that many opponents of the policy had been calling for – the chancellor did increase the threshold at which people will begin paying it, by £3,000.  

It means that, from July, workers will not pay any income tax or National Insurance on the first £12,570 they earn every year.

Sunak said: “That’s a £6bn personal tax cut for 30 million people across the United Kingdom. A tax cut for employees worth over £330 a year.”

The policy will offer much-needed help to the UK’s lowest-paid earners. It will save people earning less than £20,000 up to £400 a year, while consumers earning £35,000 a year or more will pay more in National Insurance than they do currently.

“If he wants to increase investment by retail businesses that would create jobs, increase productivity and benefit towns and high streets, he should focus on bringing down the unsustainable business rates burden”

Helen Dickinson, BRC

While Sunak insisted he could not go further now, he pledged to cut income tax from 20p to 19p in the pound by 2024, just before the UK is due to head to the polls.

The chancellor said his moves on National Insurance and income tax were the “largest single personal tax cut in a decade”. But at a time when companies are scrambling to raise wages to help their employees, the freezing of the brackets at which people pay higher rates of income tax is likely to push more people into higher tax bands. As a result, potentially millions of workers could feel out of pocket despite the tax cuts. 

As BRC chief executive Helen Dickinson warned: “This reduction will come as a welcome relief for consumers at a time when households across the country are squeezed by the cost of living crisis. Nonetheless, with the energy price caps rising in April and inflation now running at a 30-year high, households are likely to see a fall in their discretionary income over the course of 2022.”

That spending squeeze will create an increasingly price-conscious mindset among consumers, heightening the importance of retailers’ value for money credentials across their product and customer communication in the coming months.  

VAT on sustainable energy

Heat pump

The cost of installing energy-saving appliances remains a barrier to homeowners

The chancellor also axed the 5% tax on energy-saving products and materials for homeowners. For the next five years, consumers will not pay VAT when purchasing items such as solar panels, insulation and heat pumps.

Sunak said: “As energy costs rise, we know that energy efficiency will make a big difference to bills. But if homeowners want to install energy-saving materials, at the moment only some items qualify for a 5% VAT relief and there are complex rules about who is eligible.”

The move will be welcomed by home and DIY retailers such as Homebase, B&Q and Screwfix. Speaking earlier this week following Kingfisher’s full-year results, the retail giant’s chief executive Thierry Garnier outlined plans to increase the percentage of sustainable products in its own-brand ranges from 40% to 60% by 2025. The scrapping of the 5% VAT will make a chunk of those products more affordable to homeowners.  

However, with the cost of installing energy-saving appliances into homes running into thousands, the return on that investment taking years rather than months and inflation on everyday products continuing to spike, Sunak’s policy is unlikely to spark a rush for solar panels and heat pumps.  

Business rates discounts

It was a familiar tale as the chancellor again failed to unveil any reforms to the archaic business rates system – something retailers have long been campaigning for.

But he did unveil a further 50% discount on rates for smaller retail and hospitality businesses with a rateable value of up to £110,000.

While the move will be welcomed by smaller businesses, it will be a drop in the ocean for larger companies that bear the vast majority of the business rates burden. 

Richard Hayton, president of real estate adviser Altus Group, said the government’s failure to act on rates meant high street businesses face a £3.1bn “cost of doing business” tax rise from April 1.

As energy and labour costs and rates all increase, many retailers will find themselves needing to cut outgoings in other areas.   

Hospitality’s pain, retail’s gain?

Sunak neglected to delay the VAT rise on goods and services for hospitality businesses from 12.5% to 20% – another policy that will come into effect from April 1.

Pressing ahead with the rise in the rate of VAT is likely to drive up the cost of drinking and dining in pubs, bars and restaurants across the country at a time when consumers are already thinking carefully about how and where to spend their money. 

UK Hospitality chief executive Kate Nicholls said raising the rate of VAT at a time when “energy and food bills are at record highs will see today’s inflation figures soar and is a huge missed opportunity to ease those pressures across the economy and accelerate growth and recovery”.

However, if eating out becomes more expensive for consumers, grocery retailers will be presented with an opportunity. In the same way that supermarket shoppers treated themselves to more premium food and drink options during lockdowns, they could return to similar spending habits to replicate the dining out experience at home.   

‘Is that it?’

Rishi Sunak, March 2022

Source: Number 10

Rishi Sunak will be under pressure to take more action in the autumn

Despite the chancellor’s protestations that tax cuts needed to be balanced with increases in other areas, many consumers and businesses will be asking the same question as one disgruntled MP in the House of Commons: “Is that it?”

Retailers were left largely frustrated by the chancellor’s measures. Although he increased the Employment Allowance for small businesses to £5,000, there were only vague promises for investment in the autumn for larger firms in terms of employment training in the private sector.

The wait goes on for meaningful action on business rates. 

As Dickinson said: “If [Sunak] wants to increase investment by retail businesses that would create jobs, increase productivity and benefit towns and high streets, he should focus on bringing down the unsustainable business rates burden. Currently, retail businesses pay 25% of all business rates despite accounting for 5% of the economy.”

With inflation set to surge higher and living standards already reaching historic lows, the spring statement was short on lifeboats for both consumers and businesses. With troubled waters only likely to get deeper and choppier between now and the Budget in the autumn, calls for a more radical intervention from the chancellor will only grow louder.

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