Business leaders have welcomed measures by Chancellor Rishi Sunak to help cut the rising cost of living and the cost of doing business amid reports that inflation could hit 7.4 per cent or above this year.
That, combined with a slowdown in the post-Covid rate of growth, threatens to push the UK into some of the toughest economic conditions in a generation.
There are growing concerns that the poor will be hit hardest by the rising cost of necessities such as food, gas, electricity and fuel which make up a higher proportion of their outgoings.
The Chancellor warned in his Spring Statement that the economy and public finances could worsen “potentially significantly” as the full impact of Russia’s invasion of Ukraine and the sanctions against President Putin’s regime are felt back home.
He said the war’s “most significant impact domestically is on the cost of living”, with OBR growth forecasts for the year cut from 6 per cent to 3.8 per cent.
The OBR also downgraded its GDP prediction to 1.8 per cent for 2023 (from 2.1 per cent) and then 2.1 per cent in 2024, 1.8 per cent in 2025 and 1.7 per cent in 2026.
In a bid to try and ease the pain the Chancellor cut fuel duty by 5p a litre which will go some way to easing the huge rise at the pumps in recent weeks which has hit domestic drivers and industry. However prices will still stay eye-wateringly high.
Mr Sunak also said he was increasing the National Insurance Contribution threshold by £3,000 to £12,570 from July and said he would cut the basic rate of income tax from 20 pence to 19 pence in the pound from 2024.
Eileen Richards MBE runs a Leicester recruitment agency and was president of East Midlands Chamber last year.
She said it remained to be seen how far lifting the income threshold for National Insurance, which was worth more than £330 a year, would ease the cost of living for an average family.
She said: “We’ve been making the point for some months now that we are in a jobseeker’s market. However, finances are increasingly tight for all concerned – including the employers absorbing increased costs.”
Ravi Karia is the founder and commercial director of Leicester-based online clothes outlet Universal Textiles, which turned over £27 million last year.
He said the 5p fuel duty cut would only make a small difference to anyone filling their vehicles while it was good the Chancellor had increased the National Insurance threshold.
He said: “I am excited about the R&D tax credit boost and I think this is essential to boost the economy.
“I am also not sure the income tax cut is necessary and it would be better to have offered more immediate help to people struggling with the increase in the cost of gas.”
Lisa Botterill, a partner in the Leicester office of law firm Shakespeare Martineau said the Spring Statement was always going to be geared towards the man in the street rather than the needs of businesses, but there were some crumbs thrown in for small businesses with the increase of Employment Allowance which would take around 670,000 businesses out of paying NICs and the Health and Social Care Levy.
She said: “There are also some promised changes for 2023 to R&D Tax Credits which will benefit businesses in which the UK is a world leader such as AI and robotics, the details of which are yet to be announced.
“Overall it wasn’t really a budget for business but the Chancellor doesn’t have much slack to play with given the huge cost of borrowing as a result of the pandemic.”
Dr Nik Kotecha OBE sits on the board of the Leicester and Leicestershire Enterprise Partnership and is the founder and chairman of Loughborough’s Morningside Pharmaceuticals, which makes and supplies medicines to the NHS and countries around the world.
He said things had changed dramatically since the Autumn Budget, which had focussed on supporting the economy as it emerged from the pandemic.
He said: “It’s clear the burden of escalating inflation, which threatens to hit a multi-decade high of 10 per cent in the UK, is being exacerbated by the international sanctions on Russia over the war in Ukraine, as well as continued global supply chain problems due to Covid.
“If this continues, it will be the poorest and most vulnerable in our communities who may find themselves in severe hardship, which is why it was good to see the Spring Statement very much focussed on addressing the so called ‘cost of living crisis’.
“The cut in fuel duty, the raising of the threshold for paying National Insurance and the pledge to cut the basic rate of income tax during this parliament will all offer some respite.
“It was also heartening to see that the Chancellor’s package of support against rising costs and inflation extended to innovation and businesses.
“As the chairman of a pharmaceuticals business, which invests heavily in research & development, it was encouraging to hear the Chancellor outline reforms to R&D tax credits to help boost UK productivity.
“There was also a welcome indication that the Government will cut tax rates on business investment at the Autumn Budget, while providing a tax cut of up to £1,000 for half a million small firms by increasing the employment allowance.
“This is set to begin in two weeks’ time, which will further aid SMEs at a time when growth may begin to slow, while prices rise across the board.”
Mike Tuhme, a partner based out of KPMG's Nottingham and Birmingham offices, said the cost-of-living crisis had forced the Chancellor’s hand into such a big announcement on National Insurance and Income Tax thresholds.
He said: "On paper, these are pretty expensive rabbits to be pulling out of the hat, though the impact of fiscal drag in a high inflation environment has given him more than enough headroom to do this.
“Tax advisors here in the Midlands and right across the country no doubt got excited on hearing that there would be a new ‘tax plan’, but what actually landed was light on detail, making it still quite difficult to read the tea leaves when it comes to the government’s long-term tax strategy.
“There were very few clues as to how the government plans to address the numerous cliff edges and distortions that exist in our tax system.
Standing firm on the national insurance rise will likely increase division between the taxation of employment income and those that receive pensions or rental income.
“The Chancellor did offer some hints on where he is heading on corporate tax. His preference seems to be to keep the rate hike to 25% next year, but compensate for this with a narrowing of the tax base.
“A lot of difficult decisions have been kicked into the autumn but the Chancellor’s promise to consult with businesses, including those here in our region, before introducing significant tax policy changes is encouraging – although perhaps not for those tasked with responding to the mountain of tax consultations that are inevitably in store.”
