Yahoo Finance Spring Statement: Rishi Sunak announces ‘underwhelming’ business rate discount
Business groups were underwhelmed by the package of measures and tax cuts announced by chancellor Rishi Sunak in his latest Spring Statement on Wednesday.
Sunak unveiled plans to reduce tax rates on business investments in the Autumn Budget, while the basic rate of income tax will be cut from 20% to 19% by 2024.
He also confirmed that from next month, the 50% year-long discount on business rates up to £110,000 will be available for the retail, hospitality and leisure industries.
During the COVID crisis, hospitality venues received a 100% business rates discount during 2020-2021 and for the first quarter of 2021/22, with a 66% relief for the remaining nine months up to a total value of £2m per business. But, this will be replaced by the smaller 50% relief from 1 April.
With Sunak's Spring Statement delivered, here's how UK's business leaders across sectors responded to the news:
Business rates cut
The hospitality industry had been putting pressure on the chancellor to keep VAT at 12.5%, due to return to 20% from April, to help businesses struggling with rising costs and food and energy prices.
"For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal," said UKHospitality chief executive Kate Nicholls. "For a heavily, disproportionately taxed sector a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years."
She added: "Locking in VAT at 12.5% would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-COVID prosperity.
"As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation."
Read more: FTSE steams ahead as UK inflation soars to fresh 30-year high
Responding to the mini-Budget, the Federation of Small Businesses (FSB) said the measures "will provide crucial breathing space for our embattled small employers".
But, its national chairman Martin McTague warned: "With steep inflation, energy bills increasing fast, without the same support in place as enjoyed by consumers, and hiring pressures landing hard on small firms, more of the right stuff will be needed in the autumn given this challenging backdrop."
Watch: The key points from Rishi Sunak's mini-budget from fuel duties to income tax
Fuel duty reduction by 5p a litre until March 2023
The chancellor announced a cut to fuel duty to combat soaring prices at petrol pumps after Russia’s invasion of Ukraine sent costs even higher.
He revealed a temporary 5p per litre reduction until March 2023, the biggest rate cut on record. The move comes into effect at 6pm on Wednesday.
Businesses are facing high cost pressures amid rising energy and fuel costs at a time where British household budgets are squeezed as inflation grips the nation.
UK companies aren't protected by a price cap unlike consumers, and while such a mechanism would be hard to design, a fuel tax cut could provide some relief.
Stephen Phipson, chief executive of manufacturing group Make UK said that the "lack of action" on energy costs for businesses was "especially hard to fathom".
Read more: Spring Statement: Rishi Sunak cuts income tax and fuel duty
While the RAC welcomed Sunak's 5p fuel duty cut it said that this was a "drop in the ocean" and that the reduction would take prices back to where they were just over a week ago.
RAC head of policy Nicholas Lyes said: "With the cut taking effect at 6pm tonight drivers will only notice the difference at the pumps once retailers have bought new fuel in at the lower rate.
"There’s also a very real risk retailers could just absorb some or all of the duty cut themselves by not lowering their prices.
"Temporarily reducing VAT would have been a more progressive way of helping drivers as the tax is applied at the point the fuel is sold."
Mike Hawes, SMMT CEO said: "Measures to help address the accelerating cost of living are welcome but business also needs support, especially on energy, investment and skills.
"Time is of the essence as the industry is not yet in recovery but costs are increasing rapidly, undermining UK competitiveness."
VAT cut on renewable homes
Meanwhile, energy and environment groups have hit out at Sunak for offering little further relief in his package to the "vast majority" of households that will have to shoulder unprecedented rises in energy bills.
Sunak scrapped VAT on energy efficiency measures such as solar panels, heat pumps and insulation installed for five years, while doubling the Household Support Fund to £1bn.
The chancellor is putting another £500m into the household support fund, which allows councils to help poorer families. This could cut the cost of having a solar panel installed by £1,000.
Read more: Spring Statement: Top takeaways from Rishi Sunak's speech
However, while the Energy and Utilities Alliance, a trade body, welcomed the news, it said this was more beneficial for affluent households that can afford to upgrade their homes, as well as manufacturers of those products. Less well-off consumers would be left asking: "Is that it, chancellor?"
"The chancellor has clearly not heard the outcry over rocketing energy bills faced by millions," said CEO of EUA Mike Foster. "He has done nothing in the Spring Statement to help the vast majority of consumers who face bills doubling this year."
Watch: Rishi Sunak cuts to zero VAT on energy saving improvements at home
National insurance threshold and employment allowance
Sunak set out a series of measures to help businesses boost investment, innovation, and growth, including a £1,000 increase to employment allowance to benefit around half a million smaller firms.
"We originally put forward the employment allowance as a targeted measure to help small firms, and it has now been expanded three times since its creation," added McTague. "Together with a cut to fuel duty, these measures will provide crucial breathing space for our embattled small employers."
Manufacturers group Make UK had called on the chancellor to delay the rise in employers national insurance (NICs), with employee payroll costs increasing.
"Today was a missed opportunity for the chancellor to act on concerns raised by employer and employee groups alike to delay the NICs hike until the economy is in a more robust position," said Verity Davidge, director of policy at Make UK.
Read more: What Sunak's NI threshold increase means for you
While Sunak is pushing ahead with his planned NICs hike, despite a backlash from minsters, he announced a £6bn plan to lift the national insurance threshold by £3,000 from July. This means it will be equivalent to the income tax threshold, amounting to a tax cut for people of £330 a year.
The chancellor had been facing pressure from opposition MPs as well as from Conservatives to scrap the planned national insurance hike. The tax, paid by employees and employers, is set to rise by 1.25p in the pound to pay for more investment in health and social care.
The Institute for Fiscal Studies had said the move would compensate 70% of workers who will be hit by the 1.25 percentage point rise in national insurance contribution, which will kick in next month.
Rising costs of living and impact from Ukraine war
Lobbying groups said Sunak's mini-budget "fell short of the action" businesses needed to see today.
Shevaun Haviland, director general of the British Chamber of Commerce (BCC), said: "While there are some positive announcements that firms will welcome, it did not fundamentally address the huge cost pressures they are facing.
“Businesses will be pleased that the employment allowance has been increased. This long running ask of the BCC will provide a small amount of financial headroom for firms facing rising costs."
Haviland added that today was a "missed opportunity to rebuild and renew the economy" and ensure business has the resilience to weather the uncertain and volatile times ahead.
The Confederation of British Industry (CBI), Britain's largest employers group, said on Wednesday that surging inflation was harming living standards, while the economic effects of the Ukraine war was particularly hitting smaller firms and those in energy intensive sectors.
Tony Danker CBI director general, said that Sunak's steps are "welcomed" but they "don’t do enough to tackle the current challenges facing firms".
"In reality, we cannot wait until October to get growth going. The government needs to get moving straight away," Danker added. "We need concrete plans now on how we get new nuclear, hydrogen and onshore wind investment."
Read more: UK inflations hits 6.2% ahead of Rishi Sunak's Spring Statement
It comes as UK living standards are set for the biggest drop on record as the Office for Budget Responsibility (OBR) said rising inflation will cut household disposable incomes by 2.2% on a person-by-person basis in 2022-2023.
The OBR predicts inflation will hit a 40-year high to 8.7%, with energy bills poised to rise £830 a year from October.
Commenting on the pressures facing households and the Spring Statement, Linda Ellet, head of consumer markets, retail and leisure at KPMG said that while Sunak's efforts to ease the rising cost of living are welcome, the squeeze is getting tighter.
"Those fortunate enough to have saved during the pandemic started the year sitting on the bulk of those savings due to uncertainty," Ellet added. "But the certainty of rising costs means many will be dipping into those savings to help balance their budget."
