Chancellor Rishi Sunak gave his spring statement yesterday against a backdrop of a cost of living crisis – which could see the UK facing the largest fall in living standards since records began in the 1950s – and the Ukraine crisis.

The chancellor’s headline announcement was a 5p a litre cut in fuel duty which came into effect at 6pm last night and will remain in place for a year. He also announced a £3,000 increase in the national insurance threshold in July to equalise it with income tax, but did not roll back a planned 1.25-percentage-point increase in national insurance due to come into force in April. Rishi Sunak’s tax changes apply in Wales.

Businesses in Wales, as with the rest of the UK, are feeling the impact of rising costs in areas such as recruitment, utilities, raw materials and transport. Fuel is already a major expense for businesses, and the Ukraine crisis has helped to push already-rising fuel and heating costs even higher.

A cut to duty will relieve some immediate pressure on costs for businesses but, against a backdrop of the UK government’s plan to phase out Russian oil and oil imports by the end of 2022 in response to the Russian invasion of Ukraine and the race to net zero, the continued pressure on fuel prices is likely to continue to accelerate growth in the Welsh renewables sector in Wales.

The decision not to delay or halt the planned NI rise will make employing staff more expensive and could create a significant additional burden in an already difficult economic outlook for businesses. The chancellor did, however, increase the employment allowance for small businesses to £5,000 – a tax cut worth up to £1,000 for half a million small firms, starting in two weeks.

Also announced was a cut to zero of a 5% VAT rate for households installing solar panels, heat pumps or insulation, which may stimulate the market and drive growth in the domestic energy efficiency products sector.

There were also changes to research and development tax credits, which will also be extended to data science and cloud computing from April 2023, providing a further boost to Wales’ already-thriving tech cluster. The chancellor also said he would cut tax rates on business investment in the autumn.

In a surprise move, Rishi Sunak also announced a cut to the basic rate of income tax by 1p in the pound to come into force before the end of this parliament in 2024. The Welsh Assembly has the power to affect part of the amount of income tax that Welsh taxpayers pay, however, it has never announced any plans to deviate from Westminster.

The British Chambers of Commerce said the spring statement did not fundamentally address the huge cost pressures businesses are facing despite some positive announcements.

Sunak said forecasts from the Office for Budget Responsibility showed the economy would grow by 3.8% this year, however, it was reported yesterday that UK inflation hit 6.2%, the highest level in three decades, with the chancellor adding the OBR forecast that inflation would average 7.4% this year.

The future of the economy was uncertain, he added. It was too early to know the impact of the Ukraine war, he added, saying “we should be prepared for the economy and public finances to worsen potentially significantly.”

Lloyd Powell, Head of ACCA Cymru / Wales comments on the Spring Statement

“The Chancellor had the chance with this Spring Statement to prioritise supporting Wales’ small and medium businesses through the current onslaught of cost increases.

“While some positive steps were announced, many small businesses would have wanted to see more immediate support. Changes to the Employment Allowance and National Insurance Contribution thresholds are both welcome steps, though we called for the NICS increase to be postponed by a year. Many small firms will welcome the fuel duty cut announced but are likely to be frustrated by the lack of help on business energy bills.

“In conclusion, the Chancellor has tried to find manoeuvrability to tackle rising costs and increase the UK’s growth rate. We would have hoped for a little more to support individuals and businesses to cope with high costs and tax increases they face.

“But as the Chancellor says, tax cuts need to be paid for and the future promise to cut the basic rate of income tax may go some way to do that – but it’s not a panacea. It’s clear that thresholds are not keeping up with inflation and so this needs careful monitoring with strong policy decisions going forward and announced at the Autumn Budget.”

Simon Hubbard, a senior consultant and actuary at Quantum Advisory, said: 

“There has been some concern about the new health and social care levy at a time when prices are rising and family budgets are being squeezed.  Reduced National Insurance bills will bring some welcome relief and leaves lower earners paying no Income Tax or National Insurance.

“However, this does have a knock-on effect and will mean that salary sacrifice arrangements for pension contributions for those employees who currently earn between £9,880 and around £12,570 will no longer be beneficial to them. Employers who offer these types of arrangements should review these arrangements to ensure that employees within these thresholds are not impacted.”

FSB Wales Policy Chair, Ben Francis, said:

“We are extremely pleased the Chancellor has adopted FSB’s calls to increase the Employment Allowance to £5,000, to help small businesses keep their heads above water and support the staff they employ.

However, the challenging fiscal forecast laid out by the Chancellor only reinforces the urgency of our calls to help small businesses now. In April, businesses can expect to face a cocktail of rising costs, including energy bills, the reduction of the 100% business rates relief for retail, leisure and hospitality to 50%, along with rising VAT and National Insurance Contributions.

These challenges will be set against increased supply chain and staffing issues. Small businesses have gone above and beyond through the pandemic to keep customers and staff safe and account for 99.4% of total enterprises in Wales- the backbone of our economy. It is only right that they will need to be supported through this challenging landscape.

Against this difficult backdrop Welsh Government too must now consider how it can best support Welsh small businesses not only to come out of the pandemic but to successfully navigate the difficult months ahead.

We look forward to engaging with the Economy Minister as he develops plans for the Welsh economy.”

Secretary of State for Wales Simon Hart said:

“The Chancellor’s Spring Statement tackles the huge challenges facing Wales and the rest of the UK, with a package of support to ease the pressures everyone is experiencing around the rising cost of living.

“The reduction in fuel duty, help for working families, and the tax cuts for low and middle earners will help thousands of people across Wales, while the Welsh Government will receive £27m more funding to support vulnerable families over the coming months.

“During the past two years of the pandemic, the UK Government has supported people’s jobs and incomes across Wales. The war in Ukraine has now brought new challenges, but today’s measures show that we are continuing to build a stronger and more secure economy for the whole of the United Kingdom.”