Spring Statement analysis: “most useful measures too far ahead in the future”

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Written by David Jinks M.I.L.T., head of consumer research at ParcelHero

Rishi Sunak has delivered a ‘jam tomorrow’ budget for Britain’s thousands of SME businesses.

There’s no doubt that some of the measures the chancellor has announced will eventually make consumers more comfortable about spending money again. However, cutting the basic rate of income tax from 20p to 19p in the pound, at some point before the end of this parliament in 2024, seems a long way off right now for many businesses hoping for a sharp rise in high street spending.

Furthermore, plans to re-examine the apprenticeship levy, make tax credits more generous for firms investing in research and development, and cutting taxes on business investment all sound laudable, but small businesses will have to wait until the autumn budget to find out more.

That’s a lot of promises for the future, but what about today?

Fuel duty cuts: SME businesses will be relieved that the chancellor has cut VAT on fuel by 5p. That means it’s around £3.30 cheaper to fill up a typical petrol vehicle with a 55-litre tank. That soon mounts up when it comes to business mileage. However, SMEs are reportedly paying 40 per cent more for diesel than last year and still face significantly increased transport costs.

Energy bill cap: Businesses were desperately hoping for a cap to their energy bills, similar to the cap consumers currently benefit from. They will be extremely disappointed that this has not happened. Some businesses are reporting electricity prices 250 per cent up on last year and that’s unsustainable for many.

Business rate reductions: Britain’s business rates pre-covid raised £25 billion a year for the chancellor’s coffers and were the highest in Europe. Today Sunak announced 50 per cent business rates relief for eligible retail, hospitality, and leisure properties, worth £1.7 billion for small businesses. SME retailers still face an eventual return to full rates, however. That’s a threat hanging like the sword of Damocles above them.

Sunak has been discussing funding ongoing business rates reductions through a new tax on online sellers who, he argues, are likely to have a lower rate burden than physical stores. He wisely kept quiet about these plans in his statement. Such a scheme is clearly flawed, as even the government’s own consultation document acknowledges the higher costs online sellers pay for delivery networks, marketing and warehousing technology. Nor does it consider that every successful high street store also sells online. In effect, an Online Sales Tax would mean progressive retailers, with an effective website as well as physical stores, will be taxed twice.

Employers’ National Insurance Contributions: Most employers and employees will still each have to pay an extra 1.25 per cent in tax. Businesses fear the increased National Insurance Contribution could stifle future job opportunities and create more unemployment. Today, the chancellor did announce National Insurance starting thresholds will rise to £12,570 from July, which will be of benefit for lower earners, but do little to help the overall situation.

Employment Allowance: One announcement welcomed by SMEs is that Employment Allowance, which gives relief to smaller businesses’ National Insurance payments, will increase to £5,000. That is a tax cut worth up to £1,000 for half a million small businesses.

VAT rise: SMEs had hoped to hear the chancellor announce he would delay VAT’s planned return to 20 per cent in April from 12.5 per cent but that didn’t happen. That presumably means the rise will go ahead as planned. A VAT rise will slash demand for products as consumers reduce spending, and it’s also an extra burden for small businesses to keep changing VAT rates on their billing systems.

All in all, this was very much a curate’s egg of a mini-budget, good in parts. However, many SME retailers and manufacturers will feel some of the most useful measures are too far into the future, and an immediate announcement that the planned VAT rise will not be going ahead would have been of more value.