Earlier this week chancellor Rishi Sunak revealed the contents of his Spring Statement, against a backdrop of economic uncertainty where he referenced the national pandemic recovery and the war in Ukraine.
Key announcements made included cutting fuel duty, raising the National Insurance threshold and enhancing the R&D tax credits system for more sectors to stimulate private sector investment.
Our experts respond below to the statement at large.
Stephen Dawson, partner and head of Shoosmiths’ financial services team, said:
“Uncertain Times Ahead” the Chancellor tells us as part of his presentation of the Spring Statement. He’s not wrong. We commented in January on an uncertain backdrop to the UK economy and world events have really delivered.
“Inflation is tipped to hit an all time 40-year high of 8.7% in the final three months of 2022. The response to the Chancellor’s statements is consistent across our legal markets in the UK. Described as “tinkering around the edges” in Northern Ireland, and “only giving an inch of breathing space” the FSB in Scotland says. And the press focus in E&W has remained on a trumpeted £330 tax cut per working household, but an estimated £1100 overall worse off position next year with price rises taken into account.
“The principal concern remains uncertainty. Cause by rampant inflation, an ongoing post-Covid hangover hitting supply chains in industries including manufacturing, construction and automotive. Another fear is the impact for the UKs ambition to achieve accelerated decarbonisation targets. Funding and strategy lag are all going to play a part.
“Overall therefore, the Chancellor is not to be blamed for world events. But the question is how long the broader UK economy will stave off a more appreciable decline in growth as financial support across all areas remains modest.”
Sam Henegan, commercial lawyer and the firm’s Future Mobility lead, said:
“The Chancellor’s announcement of widening the scope for R&D tax credits comes hot on the heels of a string of new tech investments by automotive manufacturers into the UK. Nissan, for instance, announced last year a £1bn project in the North East to create a world-first ‘electronic vehicle manufacturing ecosystem’, generating more than 1000 jobs. Aston Martin has also announced its intention to develop high-performance batteries in the UK with Britishvolt, Ford has invested £230m to make electric car parts in the UK, Stellantis has invested over £100m in electric van production at Ellesmere Port, while Jaguar Land Rover and Tesla are both reportedly considering UK battery plants.”
“Confidence in UK automotive manufacturing already seemed to be on the rise post-Brexit. The Spring Statement R&D announcement could inspire big OEMs to invest more and even shift further R&D functions into the UK. It might also be the push that some market-entrant manufacturers needed to set up shop in the UK. As recently as last year, we were speaking to a number of foreign start-ups mulling the prospect of establishing their commercial operations / R&D base in the UK but were shopping around for the best R&D incentives The Spring Statement announcement might be the push that some of these businesses needed.”
Nicky Jenkins, legal director in Shoosmiths’ intellectual property team, said:
“The government recognises that productivity growth depends on innovation, technological change and organisational arrangements. Last week’s commitment of its largest ever R&D budget, worth £39.8bn for R&D activities for 2022 – 2025, proves the government is serious about driving economic growth through R&D. Today’s budget recognises the financial impact on research heavy organisations, many of which are SMEs, who must use expensive resources and services in the R&D activities.
“The Chancellor aims to relieve the burden at least to some extent through extension of R&D tax credits and has announced three key changes: R&D can involve the collection, processing and storage of huge amounts of data, which must be stored securely with robust business continuity and disaster recovery services. Cloud computing and data storage costs now qualify for tax relief. Where it is necessary for a UK business to carry out R&D activities must be carried out abroad, those activities will qualify for tax relief. R&D activities involving pure mathematics is brought within the scope of tax relief, meaning that businesses carrying out vital research in artificial intelligence, robotics or quantum computing can benefit. The changes to the R&D tax credits will certainly provide a boost to businesses carrying out R&D particularly in areas such as AI and robotics. Research organisations should also watch the government partner organisations such as UK Research and Innovation (UKRI) and actively monitor funding calls in order to benefit under the £39.8 billion R&D allocation.”
Heather Chandler, partner in Shoosmiths’ pensions team commented that pensions do not form a significant part of the Spring Statement, but there will no doubt be some concerns in the industry about the Chancellor’s decision to increase the National Insurance (NI) threshold from £9,880 to £12,750 from July this year owing to its impact on the State Pension:
“In order to claim the basic State Pension, an individual needs to have paid or been credited with NI contributions. Logic dictates therefore that as the threshold above which an individual is required to pay NI contributions, the number of people paying them goes down. Whilst this will result in a short-term saving (over £330 a year for a typical employee according to the Spring Statement) the long-term impact could be significant, particularly for low-income earners who may find themselves without recourse to government-funded income in retirement as a result of this change.”
Rachel Harvey, legal director in Shoosmiths immigration law team, said:
“It is welcome news that the Chancellor has announced funding measures to support the Ukrainian Humanitarian Scheme. The government has committed to provide local authorities with £10,500 per person for support services and between £3,000 and £8,755 per pupil for education services depending on the phase of education, as well as £350 per month for sponsors for up to 12 months.
“The plans should reassure local authorities that they will be supported financially if they accept refugees into their area. We are however disappointed that the Chancellor did not go further in terms of the timescales for the implementation of next phase of the scheme which will allow organisations to sponsor individuals. Many of our global clients have been asking us for weeks now for information as to how they can become involved to assist their overseas staff and their families and we are still unable to give any clarity on this point. The Chancellor briefly touched on the changes to the Immigration Rules, some of which will be introduced next month.
“These centre on attracting highly skilled and entrepreneurial individuals to the UK. However, we are still waiting policy guidance surrounding the new rules to see whether or not they will plug some of the gaps caused by Brexit.”