PwC UK’s experts give their predictions for the Spring Statement

What is the economic outlook ahead of the Spring Statement?

Barret Kupelian, senior economist at PwC UK, comments:

“Next week the Chancellor will deliver his Spring Statement. This will not be a straightforward event. It will be delivered against the backdrop of an inflation rate that is expected to peak at a level four times above the Bank of England’s objective, a 54% energy price cap increase which will amplify the cost of living crisis and an economic outlook that is becoming more uncertain with activity likely to slow down in the near-term.

“However, the good news is that the Chancellor’s starting fiscal position is around £40 billion above original expectations. The Spring Statement will therefore give the opportunity to reveal his cards on his choices whether to either relax the government’s fiscal stance temporarily or continue with the original plan. If he chooses the former, then he could opt to delay or tweak some of the planned tax rises announced previously or increase spending on vulnerable households and shore up spending on emerging areas of priority, including on defence. Alternatively, he may keep his cards close to his chest and save any potential giveaways for later on in this Parliament’s term.” 

Business investment plans need more certainty

Jon Richardson, head of tax policy at PwC UK, comments:

“For businesses, with the continued change in the economic and tax landscape, it is proving challenging to plan effectively with a reasonable degree of certainty. As the super deduction ends next April, businesses would benefit from a signal now on what the investment landscape, through for example capital allowance and incentives, will look like post April 2023. The failure to introduce accelerated reliefs will impact the UK’s international competitiveness on new business investment. For businesses to plan investments and growth, the more certainty that can be given now the better.”

Rachel Moore, R&D specialist at PwC UK, comments

"Businesses are expecting the Spring Statement to bring further announcements on the reform of R&D credits. The Chancellor has a difficult balancing act to achieve in enhancing R&D incentives to encourage more innovation in the UK while introducing measures to combat abuse, particularly in the SME market. R&D credits provide important funding to many businesses, but the value of these incentives diminish as the admin burden increases. 

“R&D credits for large businesses are less competitive than we see from our neighbours in France and Ireland, and businesses have for some time been pushing for an increase in rate, particularly given the benefits will reduce with the increasing corporation tax rate from next year."

Productivity, skills and efficiency

Alex Henderson, tax partner at PwC UK, comments

“While the Spring Statement isn’t a budget, it does provide the Chancellor with the opportunity to set his plan and vision for the economy, and as such we should expect some degree of a roadmap on how he plans to encourage innovation, investment and productivity. 

“While it may not make it into the main speech, consultations released could focus on driving efficiency in the economy, particularly when it comes to paying taxes and modernising HMRC and digital methods for tax collection.”  

John Harding, global head of employment tax at PwC UK, comments:

“Any update on productivity will also need to be an update on skills and employee training and how this can be incentivised and distributed. In a PwC survey of 150 employers in August 2021, 54% said they see apprenticeships as alternative routes to employment becoming more important to their organisation's recruitment and workforce strategy in the next decade. In the same survey, 36% of employers said the apprenticeship levy had helped their investment in training and skills, while 41% it had had no impact, and 16% said it had hindered investment in skills. When asked what would make providing apprenticeships more appealing to employers, the respondents listed the following as top priorities: Employers having more control over the standards (60%), more certainty with funding bands and longer lead times when changes are enforced (48%) and simplification of the levels and pathways (42%).”

Private business and the investment gap

Suzi Woolfson, private business market leader at PwC UK, comments:

“Something we have not had an update on in recent times is the private business investment gap and efforts to improve productivity and growth in private businesses. When you look internationally, private businesses are often a key engine of growth in economies, they are a large source of jobs and help foster innovation. It’s to be seen if the Chancellor will recognise this with further announcements on the help to grow scheme. How to support private business should be a question being asked in efforts to build a high growth, high wage economy.”

Ends