Page 5 - Spring Statement - March 2022

As the OBR notes, despite this future income tax cut, the overall result of recent Budget measures is to ‘raise the tax
burden from the 33.0% of GDP recorded in 2019/20 to 36.3% in 2026/27 – its highest level since the late 1940s.’
Viewed another way, tax planning has become more important now than in the past 75 years…

Fuel duty

The rate of fuel duty on petrol and diesel will be temporarily reduced by 5p a litre for 12 months with immediate
effect. The cost of this is £2.4bn. In practice the ‘giveaway’ is closely matched by the extra VAT revenue on fuel which
the Chancellor is receiving from the rise in pump prices since last October (when average petrol prices were 138.6p a
litre according to the ONS).

VAT on energy saving materials

VAT relief on energy saving materials is to be expanded to cover certain items such as wind turbines and the VAT rate
reduced to zero for five years from 1 April 2022. Part of the aim behind this is to encourage domestic solar panel
installation. The Spring Statement suggests it will mean savings of ‘more than £1,000’ on a typical roof top set up, a
figure which appears to have been calculated assuming the current VAT rate applicable is 20%: it is in fact 5%. These
changes will not apply to Northern Ireland because of its unique relationship with the EU. Instead it will receive an
adjustment under the Barnett formula.

Research & Development tax credits

From April 2023, all data, cloud computing and pure maths costs associated with research and development (R&D),
will qualify for relief.

Business rates: green relief

From 1 April 2023 until 31 March 2035 targeted business rate exemptions were due to be introduced for eligible plant
and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat
networks with their own rates bill. To encourage more rapid take up, the start date has been brought forward a year
to April 2022.

Tax Plan

Towards the end of his speech, the Chancellor waived a copy of his Tax Plan at the opposition benches. His words
suggested that this document was the start of a broad consultation leading up to the Autumn Budget. In practice the
Tax Plan has just a dozen pages, three of which are just blank (and blue). Much of the rest repeats the Spring
Statement measures between stock photos of shopping aisles and petrol pumps. To the extent that any plan can be
detected, it picks up on how to incentivise investment, a theme of Mr Sunak’s recent Mais lecture. This has three
aspects:

1. Capital The Chancellor plans to reform capital allowances for investment, starting from April 2023 when the
current temporary 130% super-deduction ends and simultaneously the corporation tax rate rises from 19% to
25%. Implicit in this is the possibility of raising both allowances and tax rates to avoid any loss to the
Exchequer. Mr Sunak is not convinced as much as George Osborne was that headline corporation tax rates
are key.
2. People The Chancellor wants to examine the operation of the Apprenticeship Levy and consider alternative
ways to encourage businesses to invest in training.
3. Ideas In his speech Mr Sunak highlighted that in the UK research and development (R&D) expenditure is only
half the OECD average, while the country spends more than most other nations on providing tax relief for
R&D. His conclusion was that “Something is not working”. To rectify the situation, the Chancellor intends to
reform R&D tax credits.

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