Spring Statement fails to impress for tech

Rishi Sunak's Spring Statement - specifically not a Budget - contained little in the way of help for businesses, and pressed forward with the unwelcome 1.25 percentage point hike to National Insurance.

Of particular relevance to the IT industry, Sunak discussed R&D tax reliefs, which will be expanded to cover data, cloud computing and pure maths, although there was little in the way of specifics.

The Chancellor opened with a statement about the Ukraine crisis and security, but warned that the UK's actions are "not cost-free at home"; the Office for Budget Responsibility (OBR) has slashed its growth forecast this year from 6 per cent to 3.8 per cent, falling to 1.8 per cent next year and remaining at a similar level until at least 2026.

But the war's major impact, domestically, will be on the cost of living. Again quoting OBR figures, Sunak warned that inflation is expected to average 7.4 per cent this year, and could hit 9 per cent in the autumn.

The Chancellor announced three immediate measures to address rising costs at home. The first is a fuel duty cut of 5p/litre, lasting until March 2023 and taking effect from 6pm tonight; it is said to be worth about £5 billion.

The widely expected cut to fuel duty will be a headline-grabbing move but is criticised by green campaigners, who call it "regressive" and insist there are better ways to help struggling households. As a (small) sweetener, Sunak announced his second measure: cutting the five per cent VAT rate households currently pay to install solar panels, heat pumps and new insulation to zero per cent. Finally, the Government doubled the household support fund from £500 million to £1 billion.

Another element relevant to business was national insurance. Sunak pressed forward with the previously announced 1.25 percentage point rise; however, he also announced a £3,000 increase in the threshold at which people will start to pay NICs, bringing it in line with the personal tax allowance of £12,570. While a welcome relief for many low- and middle-income earners, the flat NICs rise will largely cancel the effect out for those on salaries of £35,000+.

Urging private enterprise to invest to help recovery as well, Sunak plans to consult with businesses over the summer and implement the results in the Autumn Budget. However, he also made announcements aimed at companies today, starting with the Employment Allowance (a relief that allows smaller businesses to reduce their employers National Insurance contributions bills each year), which is rising from £4,000 to £5,000. He estimated that the cut would apply to half a million SMEs from April, 50,000 of which will be taken out of paying NICs and the new Health & Social Care Levy altogether.

Two new business rates reliefs will also be brought forward, to come into effect in April: a range of green technologies will pay no business rates, while eligible heat networks will receive 100 per cent relief.

The UK lags behind in vocational qualifications and training, and the Government will consider whether the current tax system is doing enough to encourage investment in "the right kinds of training".

Kevin Hanegan, chief learning officer at Qlik, said, "Unfortunately this comes as no great surprise. Research from Qlik revealed the most commonly held belief among British business leaders is that it is an individual's responsibility, over that of their current employer or educational institutions, to prepare themselves with the skills for the future workplace.

"This is despite 81 per cent of C-level execs expecting that the skills requirement within their organisation will change significantly in the move towards the digital and data-led workplace, impacting the employability of those without these key skills. For example, 88 per cent believe employees without data literacy - the skill predicted by employees and business leaders alike to be the most in-demand skill by 2030 - will be left behind in the future workplace...

"More must be done to close this skills gap. UK employers are not yet doing enough to prepare their workforce with the digital and data literacy needed to succeed in the years to come. It is time for the Government to step in and ensure this skills gap is closed."

As well as investment in people, the UK is also behind the average on R&D investment (less than half of the OECD's average as a percentage of GDP). With that in mind, the Chancellor announced R&D tax reliefs will be reformed to deliver "better value for money for the taxpayer". The scope of reliefs will also be expanded to cover data, cloud computing and pure maths.

Finally, Sunak announced a cut on the base rate of income from 20p in every £1 to 19p "before the end of this parliament" - which notably ties the Conservatives into that promise at the next General Election.

Commenting on the Statement, James Petter, general manager international at Pure Storage, said:

"Mr Sunak's plans to freeze personal allowance income tax up until 2026 will have far stretching repercussions that the government has simply not considered.

"Freezing tax while income increases will create fiscal drag. What this means is that we will see higher earners being pulled into higher rates of tax, while others at the lower end are taxed sooner. Unnaturally forcing people into higher rates of tax will cause those individuals to go searching for more income. Add that to the higher rates of national insurance and inflation and you've got a complete package that will end in higher attrition further fuelling the Great Resignation.

"But combatting the Great Resignation is not just about reducing inflation, the government needs to incentivise businesses to invest in young talent. Companies that incubate young talent not only have lower attrition rates, but they also secure their future. If you have up and coming talent coming through the chain, who you can teach and nurture, you'll be better placed to replace those who leave over time."