The Spring Statement was delivered to Parliament on 23 March 2022, presenting some of the Government’s measures to tackle the rise in the cost of living and the wider uncertain economic climate. The following blog post draws upon the discussion generated from the UK in a Changing Europe’s panel event which took place on 31 March 2022. Available to watch here, the panel gave an insight into the dynamics between the Spring Statement and Brexit.
The Spring Statement comes at a time of great economic significance. Supply chains have yet to fully recover from Covid-related issues. Moreover, the tragic situation in Ukraine has put extreme pressure on energy prices. There is common agreement that the current inflationary pressure is not demand-driven and hence outside of the Treasury’s control, but many expected more targeted measures to address the rise in the cost of living. Put simply, the big story for Sunak’s statement is not Brexit nor Covid, but the macroeconomy.
“The impact of the UK’s exit from the European Union will continue to pose a problem for certain industries but has, at least for now, been largely left out of the Government’s macroeconomic strategy.“
During his speech to the House of Commons, one of the Chancellor’s few mentions of Brexit was concerning Value Added Tax (VAT). The announcement that energy-saving materials such as solar panels would now be exempt from VAT is a departure from the current European Court of Justice’s ruling on the strict application of VAT rules. As many pointed out, vulnerable families such as those on prepaid meters will not benefit from savings in the installation of solar panels when they are about to experience an increase of £708 in their energy bill.
As this is not a full budget, the statement did not include a deep and comprehensive strategy to tackle long-term economic growth. Whilst there was the announcement of a new tax strategy, Dr Gemma Tetlow from the IfG points out that the UK has once again failed to address its stagnant productivity. Furthermore, the Government’s flagship ‘Levelling-Up’ strategy failed to make it into the Chancellor’s big announcements. As Professor Jonathan Portes argues, there continues to be a big disconnect between the Treasury and the rest of the Government’s strategy for the UK.
According to Jil Ritters, the UK’s departure from the EU has created a situation of ‘acute Brexit’ in some industries, whereas others have not experienced the burden of leaving the single market. Hence, unless there is an escalation of tensions due to the implementation of the Trade and Cooperation Agreement (TCA), the UK is likely to continue under a ‘slow puncture’ trajectory when it comes to how it faces the economic consequences of Brexit. Sectors that are reliant on European labour such as Agriculture and Horticulture have largely been left out of the fiscal policies that were announced by the Chancellor.
The Government had already announced changes to National Insurance contributions (NICs) to raise money for long-term NHS and social care spending. However, the statement included a new policy which adjusts the threshold from which taxpayers will now pay NICs in line with income tax. Professor Jonathan Portes argues that the Treasury has now further complicated the tax code which could become an issue in the long term.
Overall, there’s a consensus that the Spring Statement fell short of the necessary measures to address the cost-of-living crisis. This is particularly true for lower-income households. The impact of the UK’s exit from the European Union will continue to pose a problem for certain industries but has, at least for now, been largely left out of the Government’s macroeconomic strategy.
UK in a Changing Europe event
Ben Chu, Economics Editor, BBC Newsnight
Dr Swati Dhingra, Associate Professor of Economics, London School of Economics
Dr Gemma Tetlow, Chief Economist, Institute for Government
Professor Jonathan Portes, Senior Fellow, UK in a Changing Europe
Jil Jitter, Senior Fellow, Institute for Government