The famous fictional BBC political satire character Malcolm Tucker, in one memorable expletive rant wailed that he was unable to pull “anything out of my magic hat. The rabbits are falling to pieces”. This was for the Chancellor, something similar. His starting position was from one of weakness with inflation running at the highest rate for 30 years, an energy price hike and fastest rise in food prices since 2008. A real cost of living crisis exacerbated by the war in Ukraine.
This impacts our clients because of the increase cost of raw materials for large infrastructure projects, the threat of rent rises leading to more defaults on payments by tenants and the increase in labour costs.
Despite the less than ideal starting position, and with very small room for manoeuvre, the Chancellor did manage to find the following:
- Fuel duty cut by 5 pence per litre, for a full 12 months – worth over 5 billion to the treasury;
- Energy efficiency, homeowners with energy saving measures will take 0% VAT. This will help those with solar panels and other energy saving products like heat pumps;
- Doubling the Vulnerable Household support fund, to be distributed by local authorities, to £1bn from April;
- Raising the threshold for National Insurance with every worker able to earn £12,570 before NI tax is collected. This is the equivalent of a tax cut for £330 a year, from July (Although the National Insurance cut is only for employees, employers are still going to have to pay out the same NI contributions for their staff.);
- For small businesses the Chancellor increases the Employment Allowance to £5000, the equivalent of a tax cut for up to £1000
- A commitment to cut the basic rate of income tax from 20p to 19p in the pound. Before the bunting is laid out, this won’t be until the end of this Parliament, in 2024.
Levelling up, yes really
A policy point that will no doubt be glossed over, but said more about the future Levelling Up agenda, was the announcement of the doubling of the Vulnerable Household support fund distributed by local authorities. The Chancellor said in his address that local authorities know their communities best, and we expect this to be continually played out in the Levelling Up White Paper as it makes its way through the legislative process.
For the average family, the RAC have argued the cut in fuel duty will be the equivalent of a cut of £3.30 of a standard family car. Welcome news, but is it enough to keep the Conservatives on track to win the next General Election? We obviously won’t know that now, but his commitment to cut taxes via income tax before the next General Election was clearly political, allowing him to say in the future that he was the Chancellor that cut income tax for the first time in 16 years. A pretty big gamble tying his party to this manifesto commitment so early in the political cycle.
Jam tomorrow?
We may not have to wait too long for more specific help with energy intensive industries, such as steel manufacturing with speculation mounting that the Energy Security announcement next week will include a number of measures to assist. Again this is helpful for developers.
As with every economic statement, the devil is always in the detail and we’ll be wading through the red book reading the small print….