The world has changed since the Chancellor announced his budget back in October 2021. Several ‘tax changes’ were announced as a response to the rising cost of living then. Now, with inflation already at a 30-year high and the Bank of England predicting further increases to come, what has been labelled a ‘mini budget’ may see new policies announced to support households and businesses tackle this continued rising cost of living.
In recent months, we have also seen the collapse of the NI Executive and with it hopes of a 3-year budget to allow for long-term departmental planning post May elections. Until recently, big announcements on 23 March did not seem likely but as the political and economic situation continues to develop rapidly, urgent tax measures may suddenly be deemed essential.
Calls for action to help households through the cost-of-living crisis have gone beyond addressing the National Insurance Contributions increase and cover cuts to VAT and excise duties on fuel, a cut in the standard rate of VAT and other forms of financial support for struggling households. Whether the Chancellor judges that any such measures are affordable, particularly so soon after spending so much on Covid support, remains to be seen. With his recent warning of “significant economic uncertainty” ahead and his statement at the weekend that he cannot “fully protect” people from the consequences of rising prices, he may feel the need to limit his actions at this stage.
Last month the Irish Government announced cuts to excise duty on petrol and diesel to address the rising global fuel costs, resulting in many NI based drivers crossing the border for cheaper fuel. It remains to be seen whether the Chancellor will take a similar approach to cutting fuel duty, despite it being heavily trailed in the Sunday newspapers. If it were to go ahead, it could feel like a slackening of the noose for many businesses in the transport and distribution sectors and also benefit all businesses who have been hit by increases in their haulage costs. However, questions remain as to whether or not NI would be able to benefit from such a move under the terms of the NI Protocol, which would almost certainly bring political implications.
In fact, Rishi Sunak could be forgiven for wanting to say very little and hoping that the storms (both financial and political) will die down somewhat over the summer so that he can take longer-term action in the Autumn 2022 Budget.
In October the Chancellor announced a much needed £70m boost for local SMEs to support future investment and start-ups but it remains to be seen if further support will be provided for those businesses struggling due to the ‘cost of living’ rises. Just as many local businesses are recovering from Covid related issues they are being hit by spiralling input costs (raw materials, transport costs post-Brexit, energy price rises and increases in NIC, the minimum wage and wage demands that are driving up costs). This alongside consumers re-evaluating their own spending due to the same cost of living concerns will see many local businesses come under a great deal of pressure in the coming months without more government support.
Further challenges for the business community could come in the form of an online sales tax to level up the business playing field between online retailers and the high street which was mentioned by the Chancellor in the Autumn Budget and the Chancellor pre-empted the Spring Statement by publishing a formal policy consultation on the idea on 25 February.
Better news for businesses may come in the form of further proposals to improve R&D tax relief as part of the Government’s ongoing review. As reforms that have already been announced will refocus R&D relief on UK based activity, it is hoped that new proposals will make the relief even more attractive to make it cost-effective for all forms of R&D to be carried out in the UK. There may even be proposals for some form of regional based supplement to the rate of R&D to encourage more activity in areas of the UK that need ‘levelling up’.
In ‘interesting times’ like these, the temptation to do nothing for fear of doing more harm than good must be very high, however, with Local Government elections taking place across parts of England, Scotland and Wales the Chancellor will need to deliver something that can be sold on the doorsteps. For the first time in many years, businesses and households alike will be basing future decisions in part on what the Chancellor has to say on Wednesday, and Rishi Sunak will no doubt be feeling that pressure.