Save content
Have you found this content useful? Use the button above to save it to your profile.
Chancellor of the Exchequer Rishi Sunak, September 2021
Rishi Sunak_HM Treasury 2021

Sunak braces for critical Spring Statement

by

Next week's Spring Statement comes at a critical time for Rishi Sunak and the country. Philip Fisher explains why 23 March's financial statement might be more significant than the usual most Budget speeches. 

18th Mar 2022
Save content
Have you found this content useful? Use the button above to save it to your profile.

There’s a strong possibility that after years of vagaries readers will have lost track of what is a Budget and what is not.

Not too long ago, we all knew that come March the reigning Chancellor of the Exchequer would emerge from purdah, stand up in parliament and reveal a series of plans to finance the country and raise taxes to pay for them.

In advance of the speech, there would be the occasional newspaper prediction but not a single leak. How things have changed.

Somewhere along the way, the Budget moved from March to pre-Christmas but now we seem to be in a regular cycle of enjoying (sarcasm intended) two events a year either of which might have a significant bearing on our own livelihoods and strategies for advising clients.

Why is this Spring Statement significant?

Rishi Sunak is to deliver a spring financial statement on 23 March and, given all that is going on in the country and the world at the moment, there is a strong chance that it will be a major event with important changes to tax and benefits.

There are three obvious reasons why this year’s Spring Statement could be more significant than might usually be the case.

  • First, we are still struggling to recover from the ravages of the coronavirus pandemic, which saddled the country with debts that are likely to take a generation to repay.
  • Secondly, the departure from Europe and a cost-of-living crisis has been exacerbated by other inflationary increases primarily relating to fuel.
  • Thirdly, a war in Ukraine that looks like rolling on for months, if not longer, is going to affect not only those brave souls living in that benighted country but also people much further afield.

How will Sunak's tax philosophy shape his policy announcements? 

Sunak set out his tax philosophy in a recent Mais Lecture. In simple terms, this is to follow the broad principles laid down by Adam Smith in The Wealth of Nations.

For those who can lead very happy lives without reading historical books on economic theory, Smith’s ideals can be condensed down to a single line.

Give as much money as possible to the rich, and they will ensure that it trickles down to the poor, thus maximising the prosperity of all.

Can anyone see a flaw in this philosophy, which has been boldly propagated by wealthy Conservatives for generations?

Having laid out the underlying basis on which the Chancellor wishes to develop UK tax policy going forwards, we need to try and understand what it might mean for the remainder of this Parliament.

Despite mild protestations to the contrary, he clearly believes that by reducing taxes everyone will be better off.

That seems to be contradicted by so many of his recent policies, for example an unremitting desire to increase national insurance contributions for both employers and employees and freeze the personal allowance for the next five years, as inflation runs wild making “freeze” equate to reduce.

It will be fascinating to see whether, given the disastrous position that so many of the less well-off have found themselves in recently, either of these tax increases is reversed at the last minute.

How bad is the current cost-of-living crisis?

This is even more significant given the crisis developing in connection with fuel poverty. Martin Lewis, everyone’s favourite financial commentator, has suggested that this could lead to civil unrest. Given Sunak’s barely concealed desire to become prime minister by the end of the year, he may not be that enthusiastic about inciting riots at the moment.

If that analysis is accurate, something needs to be done about the situation in which the average person could find their fuel costs rising during the course of 2022 by something like £2,000 (out of net income).

It may sound ungrateful but this particular voter is not getting very excited about a £150 repayment managed through Council Tax even allied to a £200 loan. Together, this one-off strategy will not make much of a dent in an annual £2,000 rise, while unless there is a significant change in coming years, insult will be added to injury as we not only pay £2,000 extra p.a. but are also obliged to repay £40 a year from the generous loan.

At the other end of the spectrum, one wonders whether even a man as well-connected and wealthy as Rishi Sunak would really have the guts to reduce taxes for the very rich, merrily quoting Adam Smith as he does so.

With those in red wall seats literally having to choose between heating their homes and eating, this may not be the moment to inform them that those living in the mansions of Belgravia and Knightsbridge will have more money to spend on themselves and this will be of benefit to workers on zero hours contracts in the north east.

How can the Chancellor alleviate the pain? 

It is hard to imagine that many normal taxpayers would object to the idea of levying a windfall tax on those who have made zillions out of either the pandemic or fuel crisis and surely that would be a sensible way to alleviate some of the pain.

However, any good Chancellor knows all about stealth. Therefore, expect not only increases in stealth taxes that run across the board but also possibly stealthy reductions in liabilities for those in the upper echelons of society.

While most Budget speeches are as dull as ditchwater, in these very delicate circumstances, spending the lunch hour on 23 March watching a clever man attempting to juggle his priorities, while trying to sound as popular and populist as possible should make for compelling viewing.

Who knows, perhaps the NIC increase will be ditched, personal allowances increased and pigs launched into flight, all funded by a double-edged windfall tax on PPE suppliers and energy companies?

Replies (1)

Please login or register to join the discussion.

wolfy
By rob winder
22nd Mar 2022 15:48

"this will be of benefit to workers on zero hours contracts in the north east."

Would it be fair to assume you are based in the South of England Mr Fisher? It is after all only us poor folk in the North East that have zero hour contracts and live in abject poverty.

Thanks (0)