Budget chiefs unhappy over ‘mini-budget’

Leading business leaders in the UK gave a mixed reaction to measures aimed at boosting economic growth and productivity outlined to parliament on Wednesday by Chancellor of the Exchequer Rishi Sunak.

Downing Street
In his Spring Statement to MPs - effectively, a mini-budget - Mr Sunak promised action on R&D investment, business rates relief, investment incentives and help for SMEs, though actual action, he conceded, would mainly have to wait until the Autumn Budget.

Mr Sunak made his statement just hours after it was revealed the UK inflation rate rose to a 30-year high of 6.2% last month and with the Office for Budget Responsibility (OBR) forecasting it would rise to 8.7% in the coming months, largely due to the economic fallout from Russia's invasion of Ukraine.To ease the burden on households, the Chancellor announced an immediate, 5p-a-litre cut in fuel duty; the abolition of VAT on the installation of energy efficiency measures in homes, such as heat pumps and insulation; and a rise to £12,750 in July in the income threshold at which people start paying National Insurance - a move that Mr Sunak said was a tax cut for employees worth over £330 a year.

He also surprised MPs by pledging to cut the basic rate of income tax from 20p to 19p in the pound before the end of this parliament in 2024.

The rise in inflation sees UK immediate cuts to help ease the burden

To lift growth and productivity among UK businesses, Mr Sunak set out plans to boost private sector investment and innovation and bring in "a new culture of enterprise". He said details of his proposals would be discussed with business leaders before the government put forward firm plans in the autumn.

However, one measure that will take effect from the start of next month is an increase from £4,000 to £5,000 in the Employment Allowance – a relief that allows smaller businesses to reduce their employers National Insurance contributions bills each year.

"The cut is worth up to £1,000 for half a million smaller businesses and starts in two weeks’ time, on 6 April. As a result, 50,000 of these businesses will be taken out of paying NICs and the Health and Social Care Levy, taking the total number of firms not paying NICs and the Levy to 670,000," said the Treasury.

"The support for SMEs comes on top of 50 per cent business rates relief for eligible retail, hospitality, and leisure properties, also coming in this April and worth £1.7 billion for small businesses."

Additionally, the Treasury statement said: "The government will work with businesses and other stakeholders to consider cuts and reforms to best support future investment. And with UK employers spending just half the European average on training their employees, the Chancellor said he will examine how the tax system - including the operation of the Apprenticeship Levy – can be used to encourage employers to invest in adult training."

Mr Sunak also committed to improving research and develop tax reliefs, pointing out that UK business R&D investment was less than half of the OECD’s average as a percentage of GDP. The scope of reliefs, he said, will also be expanded to cover data, cloud computing and pure maths.

The Spring Statement offers no call to action for huge cost pressures businesses are facing

However, Shevaun Haviland, director-general of the British Chambers of Commerce (BCC), said the Spring Statement fell short of the action businesses needed.

"While there are some positive announcements that firms will welcome, it did not fundamentally address the huge cost pressures they are facing," she said.

“Businesses will be pleased that the employment allowance has been increased. This long-running ask of the BCC will provide a small amount of financial headroom for firms facing rising costs.

“But today was a missed opportunity to rebuild and renew the economy and ensure business has the resilience to weather the uncertain and volatile times ahead."

Ms Haviland said that, although the cut in fuel duty was very welcome, it was still just "a drop in the ocean compare to the larger tsunami" of rising costs that are confronting businesses and households.

“As the economic outlook is likely to get worse before it gets better, many firms will be forced to continue raising prices, further fuelling the cost-of-living crisis," she said.

However, Ms Haviland added: “Businesses will welcome the Chancellor’s firm commitment to cut taxes on business investment, something chamber business communities have long called for. Turbocharging investment is crucial to boosting productivity, levelling-up and the transition to net zero."

Has Mr Sunak covered enough in his Spring Statement for UK firms to be happy with?

Tony Danker, director-general, of the Confederation of British Industry (CBI), also welcomed proposals to boost business investment but said that, while Mr Sunak had taken steps to sustain confidence in the economy, the measures did not go far enough to tackle the challenges currently facing firms. 

“His new plan to incentivise business investment from next year is very good news. We stand ready to work with the Chancellor on measures essential to transforming productivity such as capital allowances, R&D reforms and a revised apprenticeship levy. These measures lie at the heart of UK competitiveness," he said.

“In reality, we cannot wait until (the Budget in) October to get growth going. The government needs to get moving straight away.

“We need concrete plans now on how we get new nuclear, hydrogen and onshore wind investment.  We need more EV (electric vehicle) charging infrastructure deployed this year.  We need post Brexit regulation changes that unleash the potential of our health, science and technology sectors."

Mr Danker said the Chancellor was right to say that the government could not solve every challenge. "However, the only enduring response to inflation, energy prices and cost of living challenges is a relentless campaign for economic growth.”

Energy cost is on the rise but no mention of supporting businesses with this challenge in the Spring Statement

Stephen Phipson, chief executive of the manufacturers' organisation Make UK, said that while it was right the Chancellor should prioritise help for lower paid workers, the government could not escape the fact that manufacturers were facing "eye-watering" cost increases.

He said many firms were being pushed towards a tipping point and that they would have been looking at the Spring Statement in the hope of substantial business support measures.

"In particular, the lack of action on energy costs for business is especially hard to fathom," said Mr Phipson.

“It has been two years to the day since lockdown began and there is very little in today’s statement to support a sector that kept working throughout the pandemic, ensuring that there was food on the shelves, PPE for our NHS and medicines for the people who needed them.

"The promise of jam tomorrow with consultations through the summer and action in the autumn will also be of little comfort for many who would have liked to have seen action and support immediately.”

Read more news and views from David Sapsted.

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