The industry responds to Sunak’s Spring Statement – preparing for the situation to “worsen considerably”

Today’s Spring Statement from Chancellor Sunak has certainly caused lots of speculation ahead of his speech in the House of Commons this lunchtime in which he announced his thinking that things will ‘worsen considerably’. So what’s he actually doing about it?

There were a raft of measures introduced today, including a 5p a litre cut to fuel and an energy efficiency scheme cutting VAT. However the highlights will be the £3,000 hike to the threshold at which National Insurance is paid – bringing it into line with the Income Tax threshold and softening the blow of next week’s NI hike for workers.  He’s sticking with his health and social care levy for NHS/Social Care funding though, so it’s taking with one hand and giving back with the other.

And the rabbit out of the hat at the end of his speech was to announce that by the end of the current parliament, the basic rate of income tax will be cut from 20% to 19%. Overall, Sunak claimed that this new tax plan delivers “the biggest net cut to personal taxes in over a quarter of a century”. Whether it goes far enough – and more importantly quickly enough – will be the subject of much discussion in the days and weeks ahead.

There were also a number of measures introduced to directly support business, it’s likely that analysts will be hard at work now assessing the impact of the announcements and what impacts they might have.

There’ll be criticism of course that there’s not a whiff around a windfall tax on utilities and whether he’s gone far enough to counter the cost of living crisis which is all too evident from today’s inflation figure coming in at 6.2%.

Commenting on today’s announcements, experts from across the wealth management and investment management spectrum have been sharing their views with us – as well as leaders from broader industry. Here are a selection of those comments which we’ll be updating throughout the day:


George Brown, an Economist at Schroders, kicks us off focusing on one piece of good news from the Spring Statement as he comments: 

“There was at least one piece of good news from today’s UK Spring Statement. Chancellor Rishi Sunak announced public sector borrowing is on course to be £55 billion lower than forecast this year, owing to stronger tax receipts. And, in welcome news for UK households, Sunak will tap some of this “headroom” to help offset rising living costs.

“Energy prices had been relentlessly rising even before Russia’s invasion of Ukraine. This has contributed to a sharp increase in annual consumer price inflation, which reached a 30-year high of 6.2% in February, according to data published earlier today.

“Nor is the inflationary pressure about to ease up any time soon. Government forecasters expect it to peak at 9% in Q4, the highest since the double-digit rates witnessed in the late 1970s and early 1980s.

“In an effort to alleviate some of the pressure on UK households, Chancellor Sunak cut fuel duty from 5p to 52.95p per litre for one year. But even after this, petrol and diesel prices are still some 8% and 13% higher than a month ago. This comes on top of the £9 billion energy bill rebate unveiled last month, which will see households receive up to £350 to help soften the upcoming £670 rise in the Ofgem price cap.

“In addition to this, Sunak announced that he would harmonise the threshold at which National Insurance contributions (NICs) are paid with the personal income tax allowance. This will see it rise from £9,880 to £12,570 per annum at a cost to the Exchequer of £6 billion. However, this will be more than cancelled out by next month’s 1.25 percentage point hike in NICs, which will raise £12 billion in revenue.”

Stephen Wolfe, Head of Commercial at BNP Paribas Real Estate commented: “With inflation already at a 30 year high and predicted to increase again to 7.4% this year, today’s Spring Statement was largely focused on addressing rising costs for households and businesses.

“Elevated inflation will remain a key headwind for the UK’s real estate market this year. The development market is already navigating inflationary pressures with construction costs growing, and this will inevitably impact commercial rent levels, as developers grapple with the feasibility on new schemes.  This comes at a time when costs have already become elevated as the industry embraces carbon reduction.

“However, the overall outlook for the market remains positive. The UK is now seen in many ways as offering better value than continental Europe, for example in Berlin and Paris prime yields are below 3%,. The UK also offers investors a very deep market for all asset classes.

“Investment volumes in January surpassed £4 billion for the first time in four years and we expect levels to reach at least £66 billion this year, maintaining the recovery which came through in 2021. Most activity so far this year has centred around retail and offices – a very welcome sign of improved confidence in the recovery in the use of workplaces and high streets.”

Andrew Barr, wealth planner at Succession Wealth sees Sunak in a very tricky position as he comments:

“Sunak is boxed in, and is signalling his intentions now with the Budget and 2024 election on the horizon. Tax reform feels like it’s being lined up for the next Budget.

“Having inflation under control by 2024 feels bold given where we are. What we’re really talking about is a more manageable level of inflation – so people will have to get used to it, and knocking on their employers’ doors for pay rises. This will of course have an impact on businesses and investment markets.”

Richard Carter, head of fixed interest research at Quilter Cheviot believes the economic outlook could get “even foggier” in the months ahead commenting :

“While Rishi Sunak announced a number of welcome measures to help households cope with the cost of living crisis, these measures most likely will not go far enough to protect the consumer from a very challenging outlook. The rise in the National Insurance threshold and the cut in basic rate income tax at the end of this parliament will go some way to put more pounds in the pockets of voters ahead of the next general election, but it doesn’t necessarily help people with the here and now. With the war in Ukraine continuing to push up the oil price and utility bills due to rise sharply in the spring, and later in the year, inflation is beginning to bite for businesses and households.

“According to the latest figures, inflation in the UK is already at over 6% and will remain at worryingly high levels for most of the year while the Office for Budget Responsibility also slashed their GDP forecast for this year from 6% to 3.8%. While the unemployment rate is expected to be unaffected by the slowing of economic growth, it does feel as if we are entering a stagflationary period. It will be difficult for the economy to emerge from this without some additional stimulus, but with interest rates on the rise it is a tricky balancing act for the government and the Bank of England.

“The Chancellor still intends to cut taxes as we get closer to the next election and he will be hoping that the improvement in the public finances is not blown off-course by geopolitical events. An uncertain outlook could get even foggier in the months ahead.”

Commenting on the limited market reaction to the chancellor’s Spring Statement, Mike Owens, Global Sales Trader at Saxo Markets, said: “Barely any reaction of note as the update focused on specific issues probably too nuanced to effect financial markets greatly. Fuel duty cut by 5p per litre feels like a drop in the ocean compared to the price rises we’ve seen at the pump and also when you consider the energy bill cap is rising 54% in April. A pledge by the chancellor to cut rates on business and investment in the autumn aims to maintain business confidence. The VAT cut on energy saving devices will assist related business. There aren’t too many that are UK-listed, but these could include Greencoat Renewables, The Renewables Infrastructure Group, ITM Power, EQTEC, and Ceres Power holdings.

“Updates on growth and inflation expectations are already pretty well understood by the market and sterling has dipped only slightly.”

Kate Elliot, Head of Ethical, Sustainable and Impact Research, Rathbone Greenbank Investments, argues that today’s Spring Statement highlights a significant gap between government’s climate ambition and the scale of the challenge as she comments:

“Improving the energy efficiency of the UK housing stock is mission critical if the Government is to meet its net zero targets and address the rising cost of living crisis in the UK. While VAT relief has been extended to help homeowners improve the energy efficiency and climate performance of their homes via measures such as solar panels, insulation or heat pumps, this barely scratches the surface. Upfront costs and affordability of these products remain a major barrier for consumers, and it will likely do little for those in private rented accommodation. Bold and ambitious action is needed if we are to implement a nationwide decarbonisation drive and avoid the severe negative economic, environmental, and social impacts of a disorderly transition. Sadly, today we have seen that a significant gap remains between government ambition and the scale of the challenge.

“Public funding is needed to support action across mid- to low-income households. This also has the potential to pump-prime the market and encourage private capital to flow towards green innovation in the housing sector and the wider economy. A long-term green homes scheme can provide consumers, industry, and financial institutions with the confidence needed to plan and invest. We have a window of opportunity to ensure that energy security and climate change are at the heart of the response to current energy price rises, but that window is rapidly closing.”

Responding to the tax implications of the Chancellor’s Spring Statement this afternoon, Aadil Masood, Senior Tax Manager at Wilton, said:

“The Chancellor announced this afternoon his plans to help create a higher growth market that allows the proceeds of this growth to be returned to the pockets of the taxpayer. However, the cuts to taxes that he has announced do not go far enough to ensure that continual spending by the general public, a key support to the UK economy, can continue. By not providing enough support, this will hinder his aims for the growth in the economy, creating a worrying cycle that risks spiraling out of control soon if not properly managed.

“Although we know a return to a more stable and secure market will take time, his promises to cut tax rates on business and capital investment in the Autumn may come too late to be of help to those who need it now.”

For Jo Rands, Portfolio Manager, Martin Currie UK Equity team, it was the OBR’s slashed growth forecast which caused the biggest eyebrow raise commenting: 

“As inflation breached 30 year highs on Wednesday investors were focussed on the Chancellor’s Spring Statement more than they normally would.

“The statement itself was fairly brief with little impact on the markets with the biggest surprise being the larger than expected £3,000 increase in the National Insurance Contribution threshold. Also included were plans to cut the basic rate of income tax to 19% in 2024.

“To help offset the rising cost of energy we saw a 5p reduction in fuel duty meaning an average reduction of £3.30 off a tank according to the RAC as well as a scrapping of the 5% VAT on solar panels and insulation.

“Arguably the more pressing news was from the OBR forecasts accompanying the budget which has slashed 2022 growth forecasts to 3.8% from 6.0%. However, the persistently high inflation throughout the forecast period means that debt to GDP is predicted to fall below 80% by 2026-27.”

Andrew Duncan, Partner and UK CEO at Infosys Consulting, the global consulting arm of multi-billion-dollar Infosys Ltd, points out that today’s announcement has left many business leaders wanting, pushing much of the innovation and R&D decisions until the Autumn as he comments: 

“Research and development tax relief and government support for innovation wasn’t focussed on in this afternoon’s budget as much as I had hoped, with the government holding back on confirming much of their support in this area until Autumn.

“Nevertheless, the plans to cut tax rates on business investment, and expanding the generosity of the existing reliefs to include data, cloud computing, and pure maths, is welcome news. As the Chancellor pointed out – we have a productivity and innovation gap that needs filling, quickly. This means making the UK a highly skilled, high-tech economy, not just by boosting UK businesses but to attract talent from overseas.

“Alongside innovative technologies like automation and AI, human capabilities are also essential for surviving a potentially looming recession. Supporting the UK’s digital re-skilling agenda is of the utmost priority – particularly as business leaders are battling for top talent during this challenging environment. The Government’s Help to grow management scheme, which offers businesses mini-MBAs and is 90% government-funded, and the Help to Grow Digital program providing 50% discount on buying new software up to £5000, are positive steps in this direction, but there is still some way to go to make real change by involving big businesses.”


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