20 March 2022

Weekly Briefing: Spring Statement of intent


As the boxer Mike Tyson astutely noted, everyone has a plan until they get punched in the face. Between Covid and the horrendous events in Ukraine, the last few years in the global economy have felt like uppercut after uppercut. No sooner has one plan been upended, than the next one comes a cropper.

Right now the focus remains on the awful situation in Ukraine, but the spectre of sustained inflation means serious discontent is rumbling the world over. Predictions of a ‘new Arab Spring’ might be premature, but it is notable that in recent weeks there have been protests against rising food prices from Panama to Egypt, Albania to Sri Lanka – a situation exacerbated by the invasion of Ukraine, which is one of the world’s biggest exporters of both wheat and sunflower oil.

The Covid situation in China, where 37 million people are now in lockdown, is another big concern. That presages not just a public health emergency, in a country where vaccination rates are lower than here, but yet more growth-sapping turmoil in global supply chains.

With all that in mind, few would envy Rishi Sunak’s task when he delivers the Spring Statement on Wednesday. This was supposed to be a brisk assessment of the public finances, possibly with a few bells and whistles tacked on to perk up the Government’s poll ratings. So severe are the looming cost of living pressures, however, that this has now become a vital mini-Budget.

Although Sunak talked yesterday about his ‘mission’ to cut taxes, there is unfortunately little sign of a u-turn on raising National Insurance. Short of scrapping the rise, perhaps the Treasury will take up the suggestion of our Centre for Policy Studies colleagues and increase the NICs threshold – that would at least mean those on average incomes and below won’t see any increase in their tax bill.

In a similar vein – as my colleague James Heywood noted this week – even if Sunak cannot ‘wave a magic wand’, especially when it comes to energy costs, he can help the worst off households by pegging benefits more closely to inflation. The current system of basing increases on the inflation rate six months ago simply isn’t fit for purpose at a time of rapidly increasing prices. Indeed, a 3.1% uprating at a time of 8% inflation is an effective cut of £10bn in the welfare budget, which even the most ardent fiscal hawks would probably concede is ill-advised at this time. 

But though the tendency is always to announce more policy – another review, or a new taskforce (we now have a ‘cost of living unit’ on the way) – the Government could also do good by paring back some of what it has previously announced. 

Take corporate taxation. The ‘super-deduction’ on new plant and machinery announced last year was very welcome, but it is offset almost exactly by the thumping rise in corporation tax that kicks in from 2023. Might it not be simpler to have a slightly less ‘super’ but permanent relief for business investment, and dial down those tax rises (especially given the Chancellor’s stated mission to reduce them)?

They should also urgently rethink the Online Safety Bill, which was published this week. Although the legislation has been primarily debated in terms of free speech and censorship, its potential economic effects are just as worrisome. As Sam Dumitriu wrote on CapX, extensive requirements for risk assessments and transparency reports promise to strangle tech startups with red tape, just when we need our most innovative firms firing on all cylinders.

So although there’s only so much a British government can do about those global economic haymakers, the very least we should aim for is not to box ourselves into a corner.

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John Ashmore is Editor of CapX.