This afternoon the Chancellor of the Exchequer Rishi Sunak delivered his 2022 Spring Statement.
Traditionally, the Spring Statement has focused on providing an economic progress report, with big announcements reserved until the main Budget statement in the Autumn.
But against the backdrop of an ever-worsening cost-of-living crisis, soaring inflation, and one of the most difficult geo-political situations in living memory, the Chancellor has been denied that luxury.
Instead, as he rose at the Dispatch Box this lunchtime, he was tasked with navigating some of the trickiest economic and political waters any recent Chancellor has faced.
On one hand, growing calls, and a political need, to offer more support for financially squeezed households.
And on the other, his natural inclination, and that of his party, for economic caution.
Factor in an increasingly vocal lobby from his own backbenches to row back on green measures to mitigate elements of soaring energy costs, despite the Prime Minister’s personal commitment to addressing the climate challenge, this truly is a Chancellor stuck between a cost-of-living ‘rock’, and a fiscally conservative ‘hard place’.
So, what path did the Chancellor choose?
It started perhaps a little predictably, and modestly – a 5% cut to fuel duty; a cut in VAT on home energy efficiency measures; and a doubling of the household support fund for the hardest hit families. There was no windfall tax on energy companies, as demanded by Labour, and no help for pensioners, who, along with those on universal credit, face the most significant real terms cut to income.
Crucially, the Chancellor confirmed that the 1.25% rise in National Insurance to fund the Health and Social Care Levy would go ahead as planned.
The Commons held its breath; would the Chancellor pull a rabbit out of the hat?
As it turns out, he found two.
Firstly, to offset the rise in National Insurance, the Chancellor announced an equalisation of the levels at which National Insurance and income tax are first levied. This will see the threshold for NI raised to £12,750, providing a £6bn tax cut for 13 million Brits.
Secondly, the basic rate of income tax will be cut to 19%, from 20%, albeit with the vaguest of timelines, ‘by the end of the Parliament’.
Some may question the logic of announcing a pre-election tax cut two years early, or indeed taking with one hand through the Health and Social Care Levy, simply to give back with the other through the equalisation of the NI threshold with income tax.
Others may point to the apparent lack of help being offered to the very poorest, such as those on Universal Credit and pensioners.
There may also be questions on whether the Chancellor offered enough to a business community which continues to face very significant challenges.
Sunak will hope that with his two tax measures in particular, he can walk the tightrope between political necessity and political ideology.
With the local elections in May fast approaching, the Chancellor will soon have a very public verdict on the choices he made today.
If you would like to discuss the measurements announced in today’s Spring Statement, and their potential implications for your business, do not hesitate to be in touch with the Brands2Life Public Affairs team. Email [email protected] to arrange an informal conversation.