Rishi Sunak clearly doesn’t want to be the whatever-it-takes chancellor of the pandemic any more. That isn’t just for hard-pressed households facing big rises in their energy bills. As far as business was concerned, his Spring Statement amounted to nothing much either, or not yet anyway.
After the bold decisions of the early weeks of the Covid crisis, the chancellor always tended to wait and see: extensions to the furlough scheme or business support came only when it was absolutely clear there was no alternative — often after the point at which businesses started to prepare for the worst. The inclination to bide his time continues.
First, there was little on Wednesday for businesses struggling with soaring energy costs, congested supply chains and staff shortages. Businesses, remember, aren’t cushioned from the impact of soaring energy prices by the regulatory price cap.
Their outgoings are set to rise further. The announced raising of the thresholds for payment of National Insurance for employees may help mitigate the impact of the 1.25 percentage point increase in the tax rate on individuals. But not for employers: a £1,000 increase to the so-called employment allowance helps only about half a million small businesses, or less than 10 per cent of the UK’s private sector enterprises. “In terms of the demands facing businesses,” says Andrew Sanford, partner at Blick Rothenberg, “it doesn’t really cut much mustard.”
Second, the “eat out to help out” chancellor served up weak sauce even in areas highlighted as personal priorities. He’s right that the UK’s poor record in research and development partly explains sluggish growth and ailing productivity. His stat on Wednesday — and in his Mais lecture last month — was that R&D spending self-financed by business as a proportion of GDP is half the OECD average.
But the pledge to overhaul the system of R&D tax credits was made last October, as was the extension of credits to cover data purchases and cloud computing. A further extension to include “pure mathematics” may not reassure those who worry that a vague system results in an inefficient free for all. A Cambridge university study found self-financed R&D spending was 10 to 15 per cent lower than when the policy started in 2000, despite costing £7.3bn a year. A parliamentary committee last month suggested the system was being abused, with tax reliefs inexplicably growing 240 per cent over four years and seemingly outstripping the underlying growth in expenditure.
Third, there was little progress on the question from big business going into this budget, namely around how to encourage more investment amid waning confidence and a poor UK record. The chancellor’s two-year super-deduction, which allows companies to offset 130 per cent of qualifying spending against tax bills, comes to an end next April. As Sunak himself points out, capital investment by UK businesses is just a tenth of GDP, compared to an OECD average of 14 per cent.
Sunak acknowledged last month that the “cloud of uncertainty” from Brexit had depressed spending in recent years. But the outlook for after his super-deduction expires — and when corporation tax is set to jump from 19 to 25 per cent — is also foggy.
He had already flagged cutting taxes on business investment as a likely priority. The UK was 30th out of 37 countries in the OECD in terms of the generosity of capital allowances before the super-deduction, according to the Tax Foundation. But what improving that might mean is unclear. The government’s “illustrations of the types of changes” it could make ranged from pretty modest adjustments to the annual investment allowance aimed at SMEs, or tweaks to existing deduction rates, to the full expensing of costs upfront as favoured by the CBI business lobby.
If policy uncertainty deters investment decisions, it remains. If a big bang is needed to ungum substantial long-term projects (the type that couldn’t be rushed forward to benefit from the super-deduction), it didn’t come.
Consultations will follow. But the Spring Statement doesn’t seem to match up to Sunak’s ambitions, or the UK’s longer-term challenges such as quintupling investment in the energy transition to £50bn a year. Given the chancellor’s apparent inclination to wait and see on the economic fallout of Russia’s invasion of Ukraine, boards considering investment may decide to do the same.
Source: Financial Times