Spring Statement 2022: What’s in store for businesses?
The Budget is an unenviable fiscal balancing act at the best of times. So, when the Covid-19 pandemic dealt an indiscriminate blow to society, chancellor Rishi Sunak’s job got even harder - forcing him to implement sweeping measures to shield the economy.
Under Sunak, the spring statement was not intended to be the “mini-budget” that his predecessor Philip Hammond favoured. However, the worst public health crisis in modern history precipitated emergency spending measures over the past two years, as the government reverted to two “fiscal events” annually. In the face of unforseen headwinds, the last two spring statements were dominated by Covid, with huge spending packages and bailouts to help businesses and workers weather the pandemic.
Mr Sunak - who delivers his spring statement to the House of Commons on Wednesday, 23 March against the backdrop of spiralling energy bills, surging inflation and a controversial National Insurance hike - will provide an update on the health of the UK economy and public finances. In the autumn Budget, the chancellor promised “a new economy post Covid… fit for a new age of optimism”.
So, how might the contents of his red briefcase impact businesses and industries in the UK?
UK business group demands
UK business groups have called on the government to introduce tax breaks and higher investment measures to stimulate economic growth and revitalise stuttering productivity ahead of the spring statement.
The Confederation of British Industry (CBI) said its proposals could generate £100bn for the UK economy by the end of the decade, and raise post-Covid economic growth to 2.5% a year - higher than the Office for Budget Responsibility’s current projection.
Tony Danker, CBI director-general said: “Faced with a record tax burden, cost-of-living crisis, wage pressures and the end of the super-deduction, firms will be looking to the spring statement for a clear signal that the government’s ambition will be matched by action,”
The Federation of Small Businesses (FSB) has urged Mr Sunak to deliver on the government's low tax pledge. In its spring statement submission, the FSB made sweeping recommendations: increase the employment allowance to £5,000; increase the rateable value ceiling for Small Business Rates Relief (SBRR) to £25,000; and simplify the R&D tax credit system, making it 'more accessible for small businesses'. The FSB also called on the chancellor to deliver on pledges to end the UK's poor payment culture.
Martin McTague, National Chair of the FSB, said: “The Chancellor has a choice: plough on with damaging tax hikes or take steps to protect the most fragile and empower small firms to deliver his 'culture of enterprise' vision.
“He rightly talks about the need to invest in capital, people and ideas. However, that investment cannot happen so long as surging operating costs are depleting cash reserves and disposable incomes.”
National Insurance hike
The National Insurance (NI) increase due to come into force in April has been met with fierce resistance from business leaders amid soaring costs as the Russian invasion of Ukraine heats up inflation. They are calling on Mr Sunak to abandon or delay the planned hike - with some arguing the plan for an immediate rise may be political rather than economic.
The NI rise will tax the average worker £250 a year - raising costs for all businesses that hire staff. Manufacturing trade body Make UK - which represents 20,000 firms of all sizes across the UK - believes the hike should be delayed until the UK economy is more robust. It warned the government that persevering with its plan could force businesses to press pause on recruitment and put the post-Covid economic recovery at risk.
Mounting concerns about the fallout from the Russia-Ukraine conflict led the business lobby to push back against the timing of further self-imposed costs on companies. Stephen Phipson, the chief executive of Make UK said: “The proposed increase remains illogical and will be even more ill-timed given how circumstances have rapidly changed since it was announced,
“The cost burden on business is continuing to escalate, and while some of these increases are due to global events, government must avoid adding shooting business in the foot by an entirely self-imposed decision.”
A Make UK survey of almost 300 manufactures showed three in five firms believe the tax rise would have a moderate or significant impact on their hiring intentions. Almost three-quarters think they would pass on, or would be very likely to pass on, the rise in costs to customers.
Freeze on fuel duty
The chancellor is under increasing pressure to reduce fuel duty by 5p in his spring statement - a move backed by senior Tory MPs. Drivers have begun to feel the impact of biting sanctions against Russia at the petrol pumps amid surging crude oil prices.
Fuel prices hit a new record high in March, with the average cost of a litre of petrol at UK forecourts topping £1.60 per litre - though sliding oil prices could offer future relief for beleaguered motorists. A planned rise in fuel duty was cancelled at the autumn statement because fuel prices were at their highest level in eight years.
Hauliers have also urged Mr Sunak to freeze fuel duty for a further two years as they contend with record prices which they claim are “wiping out” their profits. Trade body the Road Haulage Association (RHA) has called for fuel duty to be frozen for a further two years.
The impact of surging oil prices is being felt across the business landscape - and seascape. For example, the rising cost of diesel, which powers global shipping lanes, is creating a huge financial burden for operators.
The chancellor announced in the March 2021 spring statement that the reduced rate of VAT of 5% for hospitality and tourism would increase to 12.5% from 1 October 2021, until 31 March 2022. Businesses in the hospitality and tourism sectors are calling for the chancellor to hold VAT on food, soft drinks and accommodation at 12.5% instead of returning it to 20% from 1 April - which would represent a whopping 7.5% VAT increase.
For example, hotel owners argue that the escalating cost-of-living crisis means customers will already be reluctant to take trips, making it difficult for businesses to absorb the additional pressure of rising VAT along with a drop off in custom.
A new study by YouGov has revealed 79% of people who gave a view do not believe that VAT should return to 20% in April.
Rising living costs: the knock-on effect for businesses
The chancellor is facing intense pressure to alleviate the cost-of-living crisis in his spring statement, which has been exacerbated by the Russian invasion of Ukraine amid already red-hot inflation. While the public might be willing to endure financial hardship in solidarity with the people of Ukraine, many Conservative MPs are urging Mr Sunak to implement meaningful policy that softens the blow.
The inflation-fuelled crisis has rippled throughout the economy, with businesses large and small having to contend with the impact of spiralling costs. Consequently, high inflation is getting baked into businesses' pricing plans - a trend that’s likely to be compounded by energy prices, which look set to soar this year due to gas supply issues.
A British Chambers of Commerce (BCC) poll found three out of five businesses are putting up their prices in response to inflationary pressures. Of the 1,000 businesses surveyed, 5% are thinking about stopping trading altogether.
The BCC's director-general Shevaun Haviland has called for assistance from the chancellor: "Without help from the Treasury to weather this storm, many businesses, especially smaller ones, will be faced with a nearly impossible situation that will leave them with little choice but to raise prices.
"Our research has shown that businesses were drowning in rising costs even before the energy crisis began to bite.
"This latest data reveals that companies are now also under extreme pressure from spiralling gas and electricity bills as well as increased wages.
"The majority are having to raise prices in response, though many are also being forced to scale back planned investment or cut other costs from their balance sheet.
"Unabated, the surging cost pressures produced by the cost-of-doing-business crisis will continue to lead to increased prices and fuel the cost-of-living crisis currently being faced by people across the country."
Take the agriculture sector for example. The National Farmers Union has written to ministers prior to the spring statement urging them to make food security a top priority.
They fear UK farmers face an “existential crisis” that will inflate food prices as the conflict in Ukraine continues to disrupt supplies of grain and causes energy and fertiliser costs to soar - Russia is among the top five exporters of all of the top five major types of fertiliser.
According to the Agriculture and Horticulture Development Board, wheat prices in the UK are 39% higher than the same period last year and UK farmers have had to wrestle with a five-fold increase in fertiliser prices. And with energy costs expected to remain elevated for at least the next two winters, industry leaders fear it will have a major impact on UK farmers’ ability to meet the country’s food requirements.
Currency risk exposure
Businesses await the spring statement with bated breath for clarity about the economic outlook over the coming months. Risks and opportunities will emerge from the contents of the chancellor’s red briefcase for businesses - and the pound will react accordingly. This exposure to fluctuating exchange rates brings the need to understand currency market risk into sharp focus for businesses - and how to mitigate it.
Currencies are traded around the clock - 24 hours a day. Therefore, the value of the pound against other currencies is constantly changing - not just daily but by the minute. Why do they fluctuate in value? Currencies strengthen and weaken each day because banks and investors purchase huge volumes in response to political and economic news: positive news about a country typically causes the value of the currency to rise (“strengthen”), while bad news causes it to fall (“weaken”).
We also know when they might move because we often know the timing of political events that might influence them, and the economic calendar shows us when influential economic data will be released. However, there will also be news that happens without warning - anything from an unexpected surge in US non-farm payrolls to a fall in the price of bauxite.
What we cannot predict – and no one can – is whether they will move up or down or by how much. Even slight fluctuations can make a big difference to the price of your international payments. In some instances, the impact of the political and economic variables that influence exchange rates can be severe, as has been proved in recent times. For example, in March 2022 the pound slumped to the lowest since December 2020 as traders flocked to the safe-haven dollar amid an escalation in the Ukraine war.
Before the pandemic struck, this exposure to currency market risk had the potential to drive up the cost of sending money overseas if left unaccounted for. Since then, however, the importance of mitigating the impact of exchange rate fluctuations on the cost of your international payments has been magnified. This has brought the need to seek the services of a currency specialist into sharp focus for businesses and individuals.
Clear Currency specialises in helping businesses and individuals that are exposed to currency market risk save money when making international payments - both large and small.
Transferring large sums of money into another currency and transferring them overseas can be daunting and confusing. Aware of this, we use our knowledge and experience to cut through the jargon and provide you with a friendly and personal service.
We recognise that it’s impossible to accurately predict how exchange rates will perform; therefore, it’s prudent to plan for all eventualities. With this in mind, we will assign you a dedicated account manager. In addition to helping you benefit from quick, easy, reliable and secure transfers from our intuitive payments platform, they can help you mitigate the impact of currency risk on your international payments.
Your account manager will work in partnership with you throughout the international payment process. For example, a business that regularly transfers money overseas will be faced with varying costs each month due to the dynamic nature of the currency market. Therefore, they will want to secure the most favourable exchange rate.
Because fluctuating exchange rates make it hard to judge how much you’ll pay at any one time, your account manager can help you execute a forward contract to secure the cost of your payments. This allows you to lock in an exchange rate for a date in the future, securing the price of your international payments when the time comes to execute them.
This dedicated currency specialist can also help you to plan and establish a proactive hedging strategy. There’s no “one size fits all” approach to protecting your bottom line from the threat of currency risk. Therefore, a bespoke hedging strategy that aligns with your requirements, commercial context, and risk appetite will allow your business to execute effective solutions that sync with its aims.