Press release

22 Mar 2022 London, GB

Spring Statement – don’t hold your breath for tax announcements but there may be some nuggets to address the cost of living

When turning to the crystal ball of predictions, we must not lose sight of the fact that the Spring Statement is not a fiscal event like the Budget, so we are unlikely to see a raft of tax announcements and changes.

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Chris Sanger, EY’s Head of Tax Policy, comments on Spring Statement predictions

“When turning to the crystal ball of predictions, we must not lose sight of the fact that the Spring Statement is not a fiscal event like the Budget, so we are unlikely to see a raft of tax announcements and changes.

“That said, the Chancellor could well use this as an opportunity to launch a series of tax consultation documents, with a view to progressing these as we move towards the Autumn Budget. The details of the consultations may be spread out over the coming months. 

“It is most likely that the Chancellor will use the Spring Statement as it was intended: as an opportunity to provide an economic update, direction of travel on fiscal policy and as launch pad for future consultations - sticking to his predecessor’s intention of having one annual single fiscal event per year.”

Cost of living

“The Chancellor has been under a lot of pressure in recent months to address the escalating cost of living, but whether he will address this or not on 23 March is unknown at this stage.

“He may look to ease the burden of fuel costs for motor vehicles and rising energy prices, but there is a risk that any action on these may set a precedent for the future that the Chancellor would be keen to avoid. He also needs to bear in mind his commitments to ‘Net Zero’ and a reduction in fuel duty could be seen as a weakening of those commitments in some quarters. Might this mean we see some form of ‘temporary’ measure which could be reviewed within six months or in the Autumn Budget?

National Insurance Rise

“What is important to bear in mind is that there is already a large amount of tax increases legislated for, such as the rise in National Insurance as the precursor to the promised Health and Social Care Levy.

“It’s unlikely he will reverse this decision, however he may defer the rise to help with the immediate cost of living crisis. He has been categoric so far in arguing this is not on the cards but it may not be completely off the table and it remains to be seen if the Chancellor will use this particular lever. What we might see is a continuation of the policy to bring the threshold at which individuals start to pay National Insurance closer to the personal allowance (which is of course frozen for next year). There has been speculation that this could rise by the current rate of inflation, but this would go against the usual approach of taking inflation numbers as at September. Furthermore, simply raising the threshold in this way is not particularly targeted as all earners over the current threshold would benefit, not just the lowest paid.  

R&D Tax Credits

“It has been widely recognised that the current R&D Tax Credit system is not working as the Chancellor would like. While the current system provides tax credits for investment in R&D it doesn’t specify where R&D investments should be made. Much of the investment, as a result of the R&D tax credit, is being spent in the South East – it is understood that the Treasury is looking to address this and spread the level of investment across the country, feeding into the government’s levelling up agenda.

Windfall Tax

“With rising fuel and energy bills, there has been much debate about the possibility of a windfall tax on energy companies. However, given the current security of supply issues, careful consideration needs to be given to imposing a windfall tax. It could have the unintended consequence of radically reducing the amount of investment that goes into the UK continental shelf.

A nod to the Autumn Budget and tax policy beyond

“While this is likely to be a tax-light affair, the Spring Statement may well provide a window into how the Chancellor sees tax policy playing its part in shaping the UK economy over the next few years. There may well be a nod to the areas he is looking to reform over the next fiscal cycle. But as they say, all will be revealed.”