The Growth Plan 2022
Officially published as the Growth Plan, the so called ‘Mini-Budget’ has delivered huge tax cuts, the highest for 50 years, whilst formally confirming the substantial spending and borrowing commitments arising from the introduction of the Energy Price Guarantee that will protect consumers against rising energy costs; and the Energy Bill Relief Scheme, designed to protect businesses against the spiralling costs generated by wider geo-political events.
Net salaries will increase as a result of these changes so we don’t foresee any downturn in the popularity of salary sacrifice
Cutting taxes to incentivise growth
With these protective measures forecast to reduce peak inflation by around 5%, the second strand of the new government’s fiscal policy is to reinvigorate economic growth, by targeting a medium term annual growth rate of 2½%, via a range of tax incentives and reforms designed to deliver higher wages and greater opportunities, whilst also funding increased public spending.
To spark investment, the government will reform the pension charge cap to stimulate pension fund investment and introduce around 40 new investment zones designed to encourage businesses to invest, build and create jobs across the country. To incentivise private sector businesses in other parts of the country the government will legislate to permanently set the Annual Investment Allowance, which gives a 100% first year allowance for capital expenditure, at £1 million per year, and proposed to abolish the increase in the rate of corporation tax due to come into effect in April 2023, although this decision has subsequently been reversed in light of continued adverse market reaction to the government’s Growth Plan.
To further promote growth, tax simplification will be ingrained within future fiscal policy and regulatory burdens will be relaxed, with legacy EU rules to be replaced or repealed by the end of December 2023 and headline grabbing reform to IR35 to be introduced from April 2023. Businesses will be encouraged to recruit due to the abolition of the Health and Social Care Levy (“HSCL”) which was planned to be introduced on 6 April 2023, and the reversal of the temporary rise in National Insurance Contributions (“NIC”) at the earliest opportunity, which is 6 November 2022.
Whilst acknowledging that unemployment is at a 50 year low, the Chancellor noted that there are still more job vacancies than people available to fill them. Hence, he announced measures to promote work, with Universal Credit reforms being introduced to encourage people back to the workforce, alongside personal tax changes, including the reversal of the temporary increased NIC rates and abolition of the HSCL.
Further measures that were proposed but which have subsequently been reversed in light of continued adverse market reaction to the government’s Growth Plan included:
the acceleration of the cut in basic rate tax for UK taxpayers (so that excludes those living in Scotland) from April 2024 to April 2023; and
the abolition of the additional rate of tax in the UK.
What does this mean for the fleet industry?
So, to conclude, what will this mean for the fleet industry?
Firstly, given the industry’s growth product is salary sacrifice, although the NIC rate cuts will reduce the savings available, it should be borne in mind that net salaries will increase as a result of these changes so we don’t foresee any downturn in the popularity of salary sacrifice. It will be interesting to gauge whether these measures will stimulate the personal contract hire (“PCH”) market but with cost of living concerns being only partially mitigated and further interest rate rises already pencilled in, it’s likely that there won’t be a significant up tick.
Secondly, how will whole life costs be affected? The abolition of the HSCL and immediate NIC rate reduction will reduce these across the board, but there will be a disproportionately beneficial impact on higher emitting cars which generate larger Class 1A NIC for employers.
Finally, will the investment incentives, such as the Annual Invest Allowance, encourage the purchase of plant and machinery, including vans, over leasing? Perhaps we need to await the actual Budget to determine this as it’s likely there’ll be more investment driven measures, perhaps including the extension of the super-deduction for companies?