Spring Statement 2022

Today’s post takes a look at the usual speculation in advance of the Spring Statement 2022 and at what actually happened.

Spring Statement 2022

This is the fifth budget of this Tory government, which is now more than two years old, and close to the halfway point of the parliament.

• Politics since the last election has been dominated by Covid and the government’s (very costly) response to it.

To that, we can now add:

1. soaring inflation – 6.2% for the last twelve months, as announced this morning – a 30-year high), particularly in energy and food
2. broken supply chains and
3. war in Europe, together with associated sanctions and their impacts.

The tabloids are presenting all this as a “cost-of-living crisis” and there is much speculation about whether the Chancellor will do anything to insulate households from its impact.

There are also a few Covid measures for business (cuts to rates and VAT, rent and eviction protections) that are about to expire – will some of these be extended?

• Firms also face increases in raw materials prices and transport costs.
• The minimum wage is also about to rise again, and the labour market is running hot.
• And demand might fall as consumer discretionary spending reacts to rising inflation.

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So far, this Government has generally been acting in a non-Conservative fashion.

• We’ve had tons of spending and debt, and a tax rise (in NICs and on dividends), ostensibly for the NHS and then for social care spending – the so-called Health and Social Care Levy).

So which way will the Chancellor jump? Will there be more support and spending, or cuts to services and taxes?

And is Net Zero still a big target, or has it been supplanted by the need for energy security in the light of global gas shortages?

• Will fracking and/or nuclear make a comeback?

Speculation

Remember that a lot of speculation relevant to an investment blog is produced by investment firms and accountants in order to provoke action (over-reaction?) from clients and investors in advance of draconian measures that rarely appear.

• Notes in blue indicate what actually happened, which for most Budgets is a lot less than was predicted.

Income tax and NIC

Will the Health and Social Care tax rise hold?

There has been speculation that the NIC rate will be cut (perhaps to zero) for those on lower earnings, to counteract the effect of the rise.

• Alternatively, the threshold for paying NICS could rise.
• The Federation of Small Businesses has asked the chancellor to raise the employment allowance (NIC exemption) from £4,000 to £5,000. 

The NIC threshold was raised by £3K to £12,570 – the same as the basic rate income tax threshold.

• And the Employment Allowance was increased to £5K.

A plan to cut the Basic Rate of income tax to 19% in two years’ time (2024) was also announced.

Cost of living

A modest rebate on council tax for poorer households has already been announced (along with a smoothing plan for energy costs where 2022 bills are cut and the next five years’ bills are increased).

• The Resolution Foundation has asked for benefit payments to be increased by 8%.

And there was talk of VAT being taken off domestic energy bills, and possibly also the green energy levies and/or the charge towards bailing out energy suppliers that collapsed in 2021.

• We saw none of this.

Capital gains and Inheritance tax, wealth taxes

Nothing was expected here.

• And nothing happened.

Corporate tax

A windfall tax on energy companies (a bad idea) has been suggested.

• And the idea of an online sales tax to level the playing field for high street retailers won’t go away.

There was also talk of change to the R&D tax credit.

• Some reform to R&D credits was announced, but there was no detail in the speech.

Investments

Every year, a few reforms are mooted by IFAs and fund platforms:

1. A proposal to restrict income tax relief on pension contributions to the basic rate (or as a compromise to introduce a 25% or 30% relief for all)
2. Raising the fee cap on DC pensions to support investment into (green) infrastructure and private equity
3. Early access to state pension benefits (presumably at a reduced level) might be introduced to help workers with lower life expectancies
4. Further restrictions to the LTA (already frozen for five years)
5. Changes to the 25% tax-free lump sum seemed unlikely (at least on a retrospective basis).

This year, there might also have been confirmation that the State Pension Triple Lock was to be reinstated after being bypassed last year.

• Nothing major was expected on ISAs, VCTs or EIS, though the latter two might be incentivised to invest more in UK startups, now that we are out of the EU.

Nothing happened.

Green stuff

Some detail on the path to the UK’s commitment to Net Zero was expected.

• With this kind of thing, the devil is in the detail and the numbers rarely stack up long-term.

VAT was removed from “energy-saving materials” (solar panels, heat pumps etc) for five years.

• Apart from that, the Chancellor was silent.

Sin taxes

Fuel duty might be cut to combat the COL.

• It was, by 5p a litre for a year.

Surprises

I can’t think of any from a private investor’s perspective.

Conclusions

It was another quiet budget, with little that hadn’t been preannounced, and nothing for investors.

• The tax cuts will be hard to oppose, but many will say they don’t go far enough.

Until next time.