Spring Statement 2022: the CBI impact and what it means for business

Capital allowances: It is welcome news that the Chancellor has committed to supporting future business investment and boosting productivity growth, with a commitment to announce cuts to taxes on business investment at the Autumn Budget to take effect once the super-deduction ends in April 2023 - the CBI has been calling for a permanent successor to the super-deduction otherwise the UK risks languishing at the bottom of the G7 league table for business investment. The Chancellor has not at this stage confirmed the shape that increased tax cuts on business investment will take instead presenting a number of potential policy changes to the existing UK capital allowances regime – with a commitment to consult with business over the summer to shape what these tax cuts will look like.

Employment Allowance: The £1,000 increase in the Employment Allowance provides additional support for small firms with rising costs, support the CBI has been calling for more broadly. This will be welcome news for eligible businesses, with employer National Insurance Contributions due to increase imminently with the Health and Social Care Levy coming into effect from April. The increase in the Employment Allowance from £4,000 to £5,000 will provide eligible businesses (those with employers’ Class 1 National Insurance liabilities of less than £100,000 in the previous tax year) additional relief of £1,000 against their National Insurance Contributions bill.

R&D: The government has set out its plans for further review and amendments to the R&D tax credits system, as part of the ongoing review which started in 2020. Changes to the 2021 Autumn Budget announcements (consulted on in early 2022) include several of our CBI asks, including:

• The broadening of what counts as qualifying expenditure to include more cloud computing costs, including storage costs, and pure mathematics
• An exclusion from the limit on claims for sub-contracted overseas R&D where there are material or regulatory reasons why it cannot be completed in the UK

The further review confirmed by the chancellor today will also consider how to increase the efficiency of the UK R&D tax credits system to improve return on investment for the Exchequer, using the Research & Development Expenditure Credit (RDEC) which applies to larger companies as a model. The review is not over, and further announcements are expected in the autumn.

Targeted ‘Green’ tax reliefs: With the exception of the extended VAT relief for the installation of Energy Saving Materials (see below), little was announced today on greening the tax system and CBI asks of targeted ‘Green’ investment-focused capital allowances and R&D tax mechanisms, to ensure the tax system can be leveraged to accelerate progress towards the UK’s net zero target – the CBI will continue our calls for Greening the Tax System in the run up to the Autumn Budget.

National Insurance Contributions: Whilst the level at which employees pay national insurance was increased (a tax cut expected to be worth over £300 for a typical employee) there was no equivalent rise in the threshold at which employers start paying NICs nor movement on the Health and Social Care Levy coming into effect from April 2022.

The Chancellor has set out a commitment to reform and cut business taxes to create a new culture of enterprise and conditions for private-sector led growth – and government will be consulting with business and other stakeholders in the run up to Autumn Budget on tax cuts to incentivise firms to train more, invest more and innovate more.  The CBI will be continuing to call on government to deliver a permanent investment incentive to replace the super-deduction at the Autumn Budget, a measure which could boost UK business investment by up to £40 billion a year in 2026 (based on a CBI January 2022 survey), alongside shaping reform of R&D tax relief to ensure a future fit and globally competitive R&D tax credit.

Energy efficiency and heat decarbonisation: The Chancellor extended VAT relief available for the installation of Energy Saving Materials. This is a welcome measure and will reduce the cost for businesses and households insulating, switching to heat pumps or installing solar panels. The CBI called for this policy in our Greening the Tax System.

Fuel duty: The 5p per litre cut to Fuel Duty will provide short term relief to businesses struggling with soaring prices, particularly those in the logistics sector. However, without action to increase the UK’s energy independence businesses and households will remain exposed to volatile global prices for fossil fuels.

Although there were moves to cut VAT on Energy Saving Materials, the Chancellor should have provided more financial support for households to help with the upfront costs of energy efficiency improvements to help reduce energy bills over the long term. Businesses are already bearing the brunt of high energy costs and it was disappointing to see no measures aimed at supporting firms’ cashflow or reducing the burden of our Energy Intensive Industries.

The Prime Minister has promised an Energy Security Strategy in the coming weeks which will set out the government’s response to the ongoing crisis. For the CBI the priority is on accelerating the UK’s generating capacity, particularly through renewables and nuclear deployment and making use of oil and gas assets from the North Sea. We also want to see progress in the hydrogen economy with the announcement of the business models that will make projects investible. And we need support to enable the competitiveness of our Energy Intensive Industries that underpin our critical supply chains – we have called for the government to shield these firms from the policy and network costs on their energy bills. Outside of the Energy Strategy we are still awaiting a comprehensive electric vehicle charging infrastructure strategy that sets out a clear plan to ensure the creation of a holistic charging network.

Skills investment: While we didn’t see any immediate changes to the Apprenticeship Levy, the government has committed to examining whether the tax system and the levy is doing enough to incentivise businesses to invest in the right kinds of training. The CBI will continue to make the case for a Skills Challenge Fund.

Chancellor was right to focus on innovation as a productivity driver and cornerstone of a secure, resilient economy.

There were positive signals on:

• Reforming R&D tax credit and confirmation that scope will expand to include data, cloud computing and pure mathematics costs by April 2023
• Reiteration of the importance of Help to Grow to support SME innovation
• A successor to super-deduction to be announced in the Autumn.

The Chancellor talked about the importance of private sector investment in innovation to achieve UK goals. But this is still a two-way street - public sector investment in innovation is what will help drive the influx of private sector investment. So, the government need to get the money out the door and crack on with R&D tax reform and the next wave of Help to Grow to drive firm-level innovation.

Now we have the UKRI’s first five-year strategy, the budget allocations for R&D, and the Levelling Up White Paper we need to get the money flowing – on ARIA, Help to Grow and Innovation Accelerators to channel funding into regional R&D.

We need to see wave 2 of H2G, including expansion of the technologies in scope. H2G must evolve to remain effective and deliver productivity outcomes.

We welcome the publication of the Spring Statement Tax Plan and the commitment to cut and reform taxes on business investment, reform and improve R&D tax reliefs and the apprenticeship levy.

We will continue to push the Government for the funding allocations of the UKSPF and expect an announcement later in the Spring. We will also continue to work with Government and Mayors to power up the economies of the regions and devolved nations to unlock private sector investment.