'Good in parts': UK spring statement gives and takes away from business, consumers
The Spring Statement on Wednesday proved a mixed bag for many. Chancellor Rishi Sunak cut fuel duty, lifted the level at which people start paying national insurance and promised a 1p cut in income tax within two years.
There have been estimates that about 70% of wage earners will be better off in the short term, although surging inflation could dent that percentage as the year rolls on.
But the tax load for UK consumers and businesses remains the highest for decades and there was no news on business rates, a continuation of lower VAT, or a return to the previous tax-free shopping regime for tourists.
The Office for Budget Responsibility (OBR) estimates that even after the new measures, the Chancellor will preside over a UK tax burden at its highest level since the late 1940s. It also downgraded its economic growth forecast and continued to sound pessimistic on the effects of Brexit on the economy.
So what’s been the reaction so far? Jace Tyrrell, Chief Executive of New West End Company, didn’t seem happy that the Government was unmoved by pleas to reinstate tax-free shopping for tourists and made little movement on business rates.
Praising the widespread support that the Government has provided to the retail and hospitality industries over the last two years”, he added that “to support the recovery and growth of city centre businesses, we are continuing to urge [it] to reconsider the removal of tax-free shopping, relax Sunday Trading laws, and make it easier for tourists to visit our shores by streamlining the visa process. The return of high-spending international visitors to the high street, who have been absent for far too long, is also one of the most important changes that can be made to tackle rising costs”.
Meanwhile, John Webber, Head of Business Rates at Colliers, said that it “was primarily a ‘consumer led’ spring statement addressing issues such as costs of living rises and high energy bills”. But he was disappointed “that the ‘elephant in the room’, business rates was largely ignored”.
The Chancellor had reiterated the 50% business rates discount for the retail, leisure and hospitality sector as of April 1, but with a cap of £110,000 per company, and “this will only support the smallest businesses in the sectors and will do little to help the larger companies that account for the majority of jobs”.
Webber added that “retailers and other high street operators will be now considering their business plans now for next year and looking closely at their future business rates liabilities, particularly when the Covid-related reliefs come to an end. It is essential the Chancellor provides reassurance that rates bills next year will immediately reflect the lower rents we are seeing in the market now.”
SWORD OF DAMOCLES
And ParcelHero’s Head of Consumer Research, David Jinks, said: “Britain’s business rates pre-Covid raised £25 billion a year for the Chancellor’s coffers and were the highest in Europe. Today, Mr Sunak announced 50% business rates relief for eligible retail, hospitality, and leisure properties, worth £1.7 billion for small businesses. SME retailers still face an eventual return to full rates, however. That’s a threat hanging like the sword of Damocles above them.”
He also bemoaned the fact that the National Insurance increase is still going ahead, despite the threshold at which payment starts being raised.
“Most employers and employees will still each have to pay an extra 1.25% in tax”, he said. “Businesses fear the increased National Insurance Contribution could stifle future job opportunities and create more unemployment. Today, the Chancellor did announce National Insurance starting thresholds will rise to £12,570 from July, which will be of benefit for lower earners, but do little to help the overall situation.”
And while he stressed that SMEs will welcome the fact that the Employment Allowance (which gives relief to smaller businesses' National Insurance payments) will increase to £5,000, he said they’d be disappointed by there being no delay in VAT's planned return to 20% in April from 12.5%.
“That presumably means the rise will go ahead as planned”, he explained. “A VAT rise will slash demand for products as consumers reduce spending, and it’s also an extra burden for small businesses to keep changing VAT rates on their billing systems. All in all, then, this was very much a curate’s egg of a mini-budget, good in parts. However, many SME retailers and manufacturers will feel some of the most useful measures are too far into the future, and an immediate announcement that the planned VAT rise will not be going ahead would have been of more value.”
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