No Easy Answers: Sunak Facing Another Extraordinary Spring Statement

It feels poignant thinking back to what we were doing two years ago. The country was entering its first lockdown and we all had to adjust our way of life for what’s turned out to be two years – on and off.

Back in March 2020, a rookie Chancellor was trying to work out what to do to help households and businesses through this unprecedented challenge. Looking back, I think Rishi Sunak did a pretty good job. The furlough scheme kept many households afloat that would otherwise literally have not been fed and housed. For businesses, the 100% business rates relief, one-off grants and fast-track loans have meant more businesses which were forced to close during the pandemic have re-opened and are solvent, and has supported businesses like convenience stores who were allowed to open but had significant additional costs to bear and / or heavily impacted trade.

I’m sure the Chancellor was looking forward to his first true “peacetime” set piece announcement with this week’s Spring Statement, a chance to set a course until the next election that defined the type of post-Covid economy he wished to see. Sadly, March 2022 is every bit as extraordinary as the situation faced in March 2020. Yes, Covid-19 restrictions are no longer dominating every aspect of our lives, but the economic re-adjustment after the pandemic has now been coupled with the impact of Russia’s invasion of Ukraine. Add in the impact of Brexit – less acute but still relevant to many aspects of the economy – and the Chancellor is setting strategy against the backdrop of three once-in-a-generation forces all hitting the economy at the same time. 

This is most directly seen in the rising price of energy. We all see that impact as consumers and it’s right that the government looks at ways of mitigating this impact. The cost increases for businesses are just as eye-watering and just as consequential. Here’s an example from a retailer with a few stores, who I spoke to last week: for each site, they’re looking at a cash increase in their energy bills of £20,000. What the general public maybe don’t understand is that retailers are going to have to increase sales by nearly £100,000 to pay that billl. Rising product and wage costs compound these pressures and what we’re seeing in our sector is being replicated all across the economy.

So, extraordinary times that should stretch Rishi Sunak’s proven ability to find creative and targeted policies to address specific problems. There are no easy answers, but here are a few convenience-centric ideas he could look at in the Spring Statement. Firstly, he could reprise his success in using the business rates system to mitigate the impact on firms facing these challenges. Up until April, retailers are getting a two-thirds business rates discount - continuing this for the coming year and raising the ceiling of relief for businesses way above the £110,000 currently in place would make a material difference to these retailers.

Secondly, the planned increase in National Insurance Contributions paid by employees is understandably a hot topic because of course households are challenged every bit as much as businesses. But the same mitigation that many are proposing for employee NICs, raising the minimum threshold at which these become payable, would be a significant benefit for businesses too.

Thirdly, amid all of these acute challenges, what are retailers worrying about most right now? Based on the conversations we have been having over recent weeks, it’s preparing for new restrictions on High Fat, Salt and Sugar products which come into force in October. These will bring significant costs, but also the time spent preparing stores and just trying to interpret the regulations will divert time which could be spent serving customers, saving supply costs or managing investments in the business. For all we hear about new strategies for supporting high streets and businesses, the most effective support is often about choosing not to do something that will add costs and time, or at very least working to advise and support businesses with clarity to reduce that impact. To recap: the government still hasn’t published its guidance on those regulations, just over six months out from them coming into force.

I’m not sure when we’ll return to “normal” budgets and a policy process not impacted by these seismic external events. This is a Spring Statement confronting big issues, and it’s going to need some bold thinking to tackle them.

This entry was posted by Chris on Mon, 21/03/2022 - 15:03