“Businesses need essential support from the government” What support can they expect from the Spring Statement?

If you were given an extra £4.5 billion to support the country, what would you do with it?

This is a choice Chancellor Jeremy Hunt will be facing as the Spring Statement looms less than two weeks away.

With workers across the public sector striking for higher pay, with the NHS, schools and councils calling out for more funding and with energy bills and inflation putting people and businesses in desperate circumstances, there are certainly plenty of ways to spend it.

Incredibly, government figures show that 25% of UK businesses say they’re unable to obtain necessary goods needed to operate, and 23% of all adults are financially vulnerable.

The impending Spring Statement will be announced later this month and business leaders across the UK will no doubt be hoping (however cautiously) for a much-needed respite from spiralling costs, sky-high inflation and high tax levels as more and more businesses close their doors for good.

In January of this year, Prime Minister Rishi Sunak’s three core priorities for 2023 were all aimed at improving the UK’s economy, with the onus on growth through the creation of better-paid jobs, halving inflation and radically reducing the national debt. How will he underpin this?

Easing the economic burden on businesses

Britain is widely expected to be the only G7 nation to see its economy shrink in 2023, with the International Monetary Fund projecting a “sharp correction” from the top to the very bottom of the G7 league.

While the Bank of England predicts inflation to slow this year to 4%, because wholesale energy costs are down and the cost of imported goods has fallen, we can’t ignore the fact that the outlook is pretty bleak for many UK businesses.

As well as 25% of businesses reporting they were unable to obtain necessary goods for their business, 21% couldn’t acquire necessary services and one in six (16%) businesses were impacted by industrial action.

On top of this, nearly one in five businesses (19%) reported that energy prices were their main concern, closely followed by the inflation of goods and services prices (16%) and the falling demand of goods and services (13%).

That falling demand is a critical issue; seven in ten (69%) adults say they are spending less on non-essentials and this is unlikely to change unless the cost of living crisis eases.

With approximately 50 UK shops closing every single day in 2022, businesses need essential support from the government to keep going and the Spring Statement on 15th March will be crucial for reinvigorating the economy.

A (very limited) public sector pay rise?

One of the most contentious and difficult choices in front of the government is whether to award pay rises to public sector workers that are in line with inflation.

For many months, this has been resisted on the basis that it would compound inflation, making matters worse for everyone. However, this long-held theory has been seriously challenged over recent decades with the counter argument that because lower earning households are most likely to spend, rather than save, any extra money they earn could help reignite the economy. And with average pay in the private sector having risen 7.3%, a pay rise could be on the cards, for nurses at least.

Tax cuts look doubtful

Despite growing calls from Conservative MPs, Hunt is not expected to reduce business tax. Indeed, with the main rate of corporation tax increasing to 25% from 1 April, it seems impossible that the UK can avoid becoming a less attractive prospect for international investment – which is likely to further damper the UK’s negative growth.

Will the Chancellor announce an initiative to help ease the impact of this? If the UK hopes to shore up its rocky socio-economical situation, it would certainly be advisable.

One measure could be to announce intended future cuts to corporation tax, which would help frame the measure as a short-term dip rather than a long-term discouragement from foreign markets investing in the UK.

While blanket tax cuts may be few and far between, it is more likely that we’ll have some clarification on the incentives and grants that will be available within the designated freeports as well as new ‘investment zones’ for ‘under-performing areas’.

Structured support for energy bills

If the Chancellor and Prime Minister seek to support productivity, one of the first places they should look is at the energy costs of businesses and cutting the cost for households could encourage spending.

Currently, the government has capped the rates that households pay on their energy bills and it has given limited financial support to reduce bills. While many would encourage the government to go further, there is even less support for businesses with the government’s support scheme simply limiting the wholesale price that suppliers pay for energy on fixed-rate contracts.

This is due to change in name but not in scope, with The Energy Bills Relief Scheme ending on 31 March and Energy Bills Discount Scheme coming into effect on 1 April. This is the same day that energy bills are expected to surge another 20%, which will no doubt drive more SMEs out of business which are already struggling to keep the lights on and cover basic costs.

And yet, with the cost of wholesale energy having actually fallen, the government has spent much less than it had anticipated protecting bill payers. This means it could go further than it had initially planned.

It’s time for the government to do more than simply writing to Ofgem – essential support for businesses must be cemented and prices definitively capped unless we want to see the further decay of the UK high street in real time.

Small but sensible tax tweaks

Chancellor Jeremy Hunt is one who doesn’t overlook the impact that small changes can have in bringing in or saving money, and this could bear out in March.

There are several small measures that have been tipped for adjustment, including making it easier for companies to re-domicile and change their place of incorporation to the UK. It’s also likely that he will make adjustments to various tax reliefs, removing or rationalising them to make taxes more straightforward (and profitable).

There are also rumours that the Chancellor may soon bring forward the date at which the state retirement age is set to increase to 68 (joy).

Possible scrapping of the apprenticeship levy

The apprenticeship tax has long been criticised, given that only the biggest 2% of businesses contribute towards it and it is largely seen to be too bogged down in red tape. Worse still, it’s perceived to be financed more by smoke and mirrors than cold hard cash.

Scrapping it may seem unlikely, but given that the levy is not annual managed expenditure (AME) but is instead subject to departmental expenditure limit rules (DEL), the £2.5 billion allocated to the fund each year is a cash-limited – no matter how much firms pay into the fund.

With this sentiment in mind, it would seem to be an apt occasion for the Chancellor to reform or abolish the levy altogether.

After the Chancellor’s announcements have been announced, I’ll be reacting to the Spring Statement on Wednesday 15 March, drilling down into the key points announced and exactly what that means for businesses like yours.

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