What fiscal moves will surprise in UK chancellor Sunak's Spring Statement?

UK chancellor Rishi Sunak is under pressure to deliver some sort of package for UK households at next week's Spring Statement, to cushion the effects of a probable cost of living crisis this year and possibly next.

That pressure has grown - as has his scope to deliver such a package - since it became clear this week that much stronger than expected tax receipts this year mean that the Government is on course to borrow about £23bn less than the Office for Budget Responsibility had forecast at the October Budget (£183bn compared to an out-turn of closer to £160bn).

Moreover the Institute for Fiscal Studies has just predicted that tax revenues will be boosted by £20 billion a year in the next five years by the fiscal drag effect of frozen allowances and thresholds taking more tax from rising salaries and asset prices.

But Adrian Lowery, personal finance expert at investing platform Bestinvest, said that while Sunak might well announce some targeted extra help for lower-income households next week, he will probably wait until the Autumn - by which time the extent of the Ukraine war's impact on the economy and inflation will be clearer - before committing to any big fiscal measures. 

He said: "It's been an unpredictable few years for the UK's annual financial statement. It was Chancellor Phillip Hammond who moved the Budget from the Spring to the Autumn to give time for announced taxation changes to be put into law and absorbed by accountants and the tax authorities before the end of the tax year.  

"So in 2017 we had two Budgets, with the first Autumn Budget following the "last" Spring Budget.  

"In 2019 we didn't have a Budget at all because of the December election, so we went back to a Spring Budget for 2020 - Rishi Sunak's first as Chancellor - just as the pandemic began. Then there were two emergency financial statements in the following months, all of which scotched the Autumn Budget." 

He further said: "So we had a Spring Budget in 2021 again - and just in case we hadn't all had enough, an Autumn Budget too. Now we're back to a Spring Statement, which - rather than detailing taxation and spending measures - is meant to introduce broad policy changes and smaller spending pledges, as well as present the latest data and forecasts on the economy and public finances from the OBR.  

"In recent years, extraordinary responses to Brexit and Covid have overshadowed the "rabbit out of the hat" surprise giveaway from the Chancellor that had become a bit of a tradition, especially under George Osborne. With current levels of economic uncertainty, it's by no means unlikely that Rishi Sunak will make some sort of big announcement next Wednesday, even though it's not the Budget.  

"There is a rising expectation for some sort of measure to help especially less well-off households to cope with living costs, and particularly energy and fuel prices, that are soaring and threatening to depress living standards."

Lowery added: "With the National Insurance hike, which will become the Health and Social Care Levy, being part of the Government's long-term funding plans, it seems unlikely that it will be postponed - and both Sunak and the Prime Minister have insisted it will go ahead, to the chagrin of many Tory backbenchers.  

"More likely is a boost to the sort of measures already announced, or to Universal Credit, which are aimed at helping lower income households. Could the energy "loan" be turned into a grant? Could the council tax rebate be increased?  

"One thing seems very probable: a cut to fuel duty to relieve the pain of soaring petrol and diesel prices. Overall, however, whether the UK's economy and households need more serious fiscal assistance will be determined by what is currently a big unknown: how war in Ukraine progresses.  

"In one of the worst scenarios, ongoing Russian aggression could force Europe to find a way of banning Russian oil, and that in turn would probably prompt Moscow to turn off the gas taps. That would cause a real energy crisis and a major economic reversal, and most European governments would feel it necessary to intervene fiscally, as during the pandemic. 

"On the other hand, if some sort of ceasefire or settlement is reached in the coming weeks, the economic impact - in terms of growth and jobs, rather than inflation - might be fairly limited. 

He concluded: "As the direction of this big unknown will become more clear over the next month or two, Sunak will probably want to wait until his Autumn Budget before putting together any generalised fiscal rescue package. Particularly as the energy price cap, although it goes up to £1,971 next month, will protect families from any catastrophic increase in wholesale prices.

"Households can perhaps take some comfort from the fact that the economy was growing strongly before this crisis (with 0.8% monthly GDP growth in January), with the labour market strong, unemployment low and wages growing."