Spring statement 2022 - Cost of living squeeze may force chancellor to act

Rising inflation may cause the chancellor to postpone a planned increase in national insurance contributions when he makes his spring statement.

That's the view of Tony Medcalf, tax partner at Lancashire-based accountancy and advsiory firm MHA Moore and Smalley.

The chancellor is due to give his spring statement in the House of Commons on March 23 following two years in which the event has been dominated by the Covid-19 response.

Unlike the budget in which tax and spending plans are announced, the spring statement is normally used by the chancellor to respond to the Office for Budget Responsibility’s (OBR) economic forecast for spending, debt, GDP, employment and wages.

However, Tony believes levels of inflation not seen for 30 years may force Rishi Sunak to intervene.

Tony, who advises businesses and individuals across the region on tax, said: “With this being a spring statement, the expectation is there won’t be any major tax or spending initiatives being announced by the chancellor.

“However, we once again find ourselves in a time where unpredictable events are contributing to inflationary pressure and a cost-of-living squeeze.

“It’s possible the chancellor may decide to suspend the planned 1.25 percentage points increase in national insurance contributions, having so far maintained the increase would still be coming in April.

“The situation with Ukraine may see the chancellor take action to reassure the public and the markets. For example, I wouldn’t be surprised to see some intervention to urgently accelerate the supply of renewable energy in the UK and improve the security of energy supplies however that may be done.”

Tony added: “I have seen calls from some business groups for the chancellor to provide clarity on what will happen to the super deduction on new plant and machinery with the tax break due to end in March 2023, but I think it’s more likely that will wait until the budget in the autumn.

“However, in the absence of what future capital investment tax breaks may be and, given the current lengthy lead-in times for procuring new plant and machinery, businesses may be well advised to act sooner rather than later on their investment plans.”