Spring Statement: The time is not now

The hospitality sector is fuming after the Spring Statement in which what many feared would happen did: a big fat nothing. 

Sunak’s main point was that the support handed out to businesses during the pandemic kept them afloat, but, you know, he’s not about handouts, so now it’s time to pay everything back.

The time to do that is not now. 

Going back to those handouts, while much flagged, they did not actually amount to much of a hill of beans. Furlough, yes, but the ongoing open, close, open, close meant that the idea of having a cash reserve is, at this point, the stuff of wild and lavish fantasy. Instead, many people’s 3am is heavy on panic, not sleeping on beds stuffed with banknotes. 

And that’s before we look at the issues the Chancellor did not address. In eight days’ time energy costs will rise by 54%, while the planned increase in VAT will go ahead and the planned 1.25 percentage point rise in national insurance contributions will also still go ahead. 

Rishi Sunak did giveth, a tiny bit. The National Insurance threshold will increase by £3,000 this year, up from a planned rise of £300 (it appears that the threshold for employers is not increasing). There was a classic jam tomorrow promise of a cut in the basic rate of income tax from 20 pence in the pound  to 19 pence in the pound  – but in 2024 and then only if the environment was more fiscally stable. Which, given all the forces acting on the economy now, is rather unlikely. 

Sunak’s announcements today and since October will, according to the Office for Budget Responsibility, offset one third of the overall fall in household incomes / living standards in the coming 12 months. So guess who will be absorbing the other two thirds? 

The OBR added: “Net tax cuts announced in this Spring Statement offset around a sixth of the net tax rises introduced by this Chancellor since he took over the role in Feb 2020.”

The sector took all this, well, no action at all, about as well as could be expected.  UKHospitality Chief Executive Kate Nicholls said: “This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs. For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.

“Operators in the sector – large and small – have several hurdles to clear on the road to recovery: huge accumulated debts; unprecedented rising costs for energy and raw goods; a chronic shortage of staff; and a fundamentally unfair and crippling business rates regime we’re desperate to see reformed.

“Locking in VAT at 12.5% would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity. As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.”

The Chancellor loves to have photos taken of himself in places such as Wagamama. But he doesn’t listen to the sector. He is chronically detached from reality. He said: “We should be prepared for the economy and public finances to worsen.” Prepare how?

Sunak said that any tax cuts “must be prioritised and they must fit the economic circumstances of the time”. That time is not 2024. That time is now. 

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