Spring Statement reaction: Relief for workers will quickly evaporate
Today Chancellor Rishi Sunak delivered his spring statement amid rocketing inflation and economic uncertainty. Here Dr Gordon Fletcher, retail and business expert at the University of Salford Business School, gives his take on the statement.
He said: “Reductions in the fuel duty and possibly in income tax as well as an increase in the NIC threshold appear to give some relief to workers. But with the prospect of inflation climbing beyond 7% this year and volatility in the fuel supply chain these advantages may quickly evaporate.
“As the Spring Statement was being prepared there must have been a point when Sunak considered what the next day's headlines would say.
“Would this be about the cost of living crisis, post-COVID recovery, a new green economy or even a mini-war budget? What was offered up is in the end was a mixed bag that lightly promised on the first, gave nods to the others and leaned a bit too heavily on the last.
“These are changes that have little impact for pensioners or low income families in the lead up to next Winter. And reducing contributions in reduces government's ability to service debt or support social services.
"A slight reduction in the VAT for heat pumps also offers no hope for these groups - although it might be bring enough appeal for making the second home a bit greener. Placing the blame on the impact of Russian sanctions may ring the government's bell in showing international leadership but the many economic challenges we are now facing were evident long before tanks started rolling towards Kyiv.”
And Dr Maria Rana said: “In what would have been only an update on the economic outlook accompanied by the latest forecasts published by the Office for Budget Responsibility (OBR), in today’s spring budget the Chancellor had instead to face again an economic emergency due to the increase in the cost of living.
“Rishi Sunak started his speech referring to the conflict in Ukraine and the economic costs of imposing sanctions to Russia. Clearly Brexit and the Government’s response to Covid-19 have not been mentioned as determinants of the current situation.
“However, let’s not forget that last October 2021, the chairman of the OBR said that in the long run “the impact of Brexit on the UK’s economy will be worse than the impact of the covid pandemic”.”
“In what seemed an anticipation of inefficient measures to be announced, the Chancellor also referred to inflation in the UK being lower than in the US and in line with the increase in prices in Europe. Prices in the UK actually increased by 6.2% since last February, the highest in thirty years with inflation expected to average 7.4% in 2022, and reaching a 40 year high of almost 9% by the end of this year according to the latest predictions of the OBR.
“As largely anticipated since already implemented in other countries, from Ireland to Italy, a 5p per litre cut in fuel duty has been announced, starting from 6 pm tonight and until March 2023. This will clearly help but is not enough. What has often been the elephant in the room, i.e. Brexit, was instead mentioned today as the reason why VAT can be scrapped on insulation, solar panels and heat pumps.
“Another anticipated measure that has been announced is the increase in the National Insurance threshold, which has been increased by £3,000 to £12,570. Other measures, including doubling the Household Support Fund (i.e. grants given to councils to support the most vulnerable households) and a promise to decrease the basic tax rate before next election, but not yet. So are these measures sufficient to support households during these tough times? Not really. “Is that it?” Was one of the comments after the Chancellor’s speech. Unfortunately, it seems the Chancellor “does not understand the extent of the cost-of-living crisis”, as Rachel Reeves put it.
“Households need more support and now not in one or two years’ time. Additionally, Sunak keeps referring to long term growth, productivity and innovation. It is not clear, however, how this will be achieved. Investment in education, infrastructure and technology are the engines of economic growth, however it is not news that this Government is not spending enough on those sectors that mostly create and boost growth.”
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