Spring Statement 2022: City academics have their say
The Rt. Hon Rishi Sunak MP, Chancellor of the Exchequer delivered his Spring Statement to the House of Commons today, having offered a glimpse into his vision at the recent Mais Lecture which he delivered at Bayes Business School.
Academic experts from across City, University of London have been having their say.
Professor Michael Ben-Gad, Professor of Economics, said:
"Today’s announcement that the threshold for NICs will rise by £3,000 will partly offset the increase in revenue this was meant to generate. Its primary beneficiaries will be the working poor, who will benefit disproportionately. Unfortunately, because the rates for most people remain higher on each marginal pound earned, the disincentivising effects of NICs will still increase.
"The other declines in taxation are clearly motivated by politics. Yes, a decline in the rate of income tax is always welcome, provided we can afford it, but if it is such a good idea, why wait till 2024? The obvious answer is the Chancellor is promising nervous Conservative MPs that he will be ‘there for them’ in the run up to the next election. Perhaps he hopes they will be ‘there for him’ when he moves to replace Boris Johnson?
"Same for the cut in fuel duty. It is a general rule of economics that when you tax something, you get less of it. NICs disincentivise work, income tax disincentivises work, savings and investment, whereas fuel duty disincentivises the consumption of fuel. Setting aside the issue of climate change, burning fuel increases pollution, increases road congestion and now – with the crisis in Ukraine – increases Russian leverage on both the UK and its allies.
"Fuel duty is an example of a Pigovian tax (named for Cambridge Economist Arthur Pigou): one that taxes activities that, unlike work and ordinary consumption, create negative externalities. However, here too, politics trumps economics; the cut will be visible to anyone filling their tank."
Dr David Blunt, Senior Lecturer in the Department of International Politics, said the Spring Statement showed just why few Chancellors become Prime Ministers, in spite of Mr Sunak's likely ambitions:
“Rishi Sunak is the favourite to replace Boris Johnson as Prime Minister at some point in the future, but today’s Spring Statement shows how difficult it is to move from Number 11 to Number 10. Despite the received wisdom that being Chancellor is the path to the premiership only three have achieve this move in recent British politics out of the 25 who have held the post: Harold Macmillan, John Major, and Gordon Brown (Jim Callaghan was also Chancellor but entered Number 10 via the Foreign Office). Many Chancellors have had pretensions for the big job, but few make it. Why? History catches up with them.
"Today’s Spring Statement saw Rishi Sunak trying to burnish his credentials as a proper Conservative chancellor: prudent with money, rewarding work with low taxes, and encouraging market competition. Yet, he also happens to be the man who has spent more than any chancellor since the Second World War, raised taxes to record levels, and apparently gave away billions of pounds to cronies and crooks.
"Underpinning the statement was a narrative of enduring hardship to help the people of Ukraine. This was a rather shabby politicisation of a humanitarian catastrophe to give cover to the fact that Britain has been deeply wounded by a decade of austerity, a blundering approach to Brexit, and a sluggishly inept response to the pandemic.
"Sunak may hope that future voters will pin all this on Johnson, but people tend to remember the person who makes their pay packet smaller when the cost of bread is rising.”
“It’s great to see that the Chancellor has given some relief to fuel duty.
"The massive increase in petrol and diesel prices at the pumps over the last year has hit those on a low income who need to commute in their own vehicles extremely hard.
"However, it is a shame that this hasn’t been paralleled by any encouragement for users of more efficient electric vehicles. Driving an Electric Vehicle (EV) is already considerably cheaper per mile than a petrol or diesel car, but public charging has gone up a lot recently too as electricity costs have risen. Therefore a temporary cut of VAT here would have been welcome.
"The Chancellor’s Spring Statement also comes just as the OLEV grant for home charger installation is finishing, at the end of March. While EVs may still have an image of being for the rich, schemes like the NHS Fleet Solutions and EV leasing scheme in practice have put electric cars in the hands of key workers as well.
"On the plus side, the VAT cut for energy efficiency services at home applies to solar panels, which should encourage more people to install these so their home-charged EV miles can be powered by their own renewable energy.”
Professor Andy C Pratt, Director of the Centre for Culture and the Creative Industries, said the Chancellor’s Statement failed to go far enough on assisting the struggling sector:
“Despite their significant contribution to both the economy and to cultural life, the creative industries were losers in the Chancellor’s Spring Statement.
“This heaps on more pain to the those that suffered ‘non-furlough’ as self-employed workers – the majority in the cultural sector. A precious few benefited from the furloughs enabled by major cultural institutions. The ‘crown jewels’ are no good if they have nothing to support them.
“While many retail businesses can start trading immediately as customers return, for creative activities – especially those in the ‘live’ sector – there is a long lead time of rehearsal and preparation of sets and costumes.
“What the creative economy needs is a ‘kick-starter’ investment to bridge the period between the end of Covid-19 restrictions and the ability to trade again. Additionally, we know that many creative workers will not return. They have had to move into other areas of work for survival, and many trained professionals will be lost to the industry – a factor which will make ‘return to normal’ a huge problem. Creative education and training, another area of cuts incidentally, will be vital as the industry seeks to rebuild.
“Covid-19 has been a rolling crisis for the creative economy. The Chancellor’s further public sector budget restraints are the last thing that is needed if this internationally leading industry is to get on its feet again.
“Sadly, the Chancellor seems to think that cultural life is just for sunny days. On the contrary, it underpins our society and economy, and that means investing on rainy days so that the creative industries are even there for the sunny days.”
“London busses often turn up in threes.
“Unfortunately for Rishi Sunak, so have recent economic shocks. First there was Brexit, then the pandemic and now Ukraine.
“In the short term, this requires bold measures to protect those who are ‘just about managing’ – so-called ‘JAMS’. As Ronald Regan said about the deficit, ‘It’s big enough to look after itself’. With safe havens for investors’ money in short supply, the current high rate of inflation should not impact one-for-one on gilt yields which currently stand at about 3 per cent per annum over 30 years.
“Surely there is enough time to slowly reduce the deficit and debt-to-GDP ratio in the future, after the eye of the storm has passed.”
Ahead of the announcement, Professor Steve Schifferes, Honorary Research Fellow in City, University of London's Political Economy Research Centre wrote for The Conversation about the challenging balancing act facing Mr Sunak.
Commenting further on the Chancellor's statement, Professor Schifferes said:
"The Chancellor’s Spring Statement provides some help to those in work, but is poorly targeted towards those at the bottom of the income distribution who are not in work who will be hardest hit by the cost-of-living crisis.
"The cut in petrol tax will provide more benefit for better-off motorists, while there are no additional funds for tackling fuel poverty. The Chancellor rightly cites the uncertain – and worsening - economic outlook as a reason for caution in doing more in regard to fuel poverty, but nevertheless is prepared to promise a cut in income tax just ahead of the next general election.
"An unspoken consequence of this ambition, in the context of higher-than-expected inflation, will be pressure to squeeze more efficiency savings out of the public sector and keep a lid on public sector wages. Nor is it clear that further changes in the business tax system will be the key to boosting productivity, after the failure of his current scheme for extra tax relief to boost investment."