The UK Chancellor's Spring Statement will not be "a free lunch of giveaways", although the cost-of-living crisis and upcoming council elections is likely to encourage "more generosity than usual", according to several industry commentators.
Chancellor Rishi Sunak is due to deliver his Spring Statement tomorrow (23 March), at a time when rising food and energy prices is putting pressure on household finances.
"The Spring Statement should be viewed as part of a fiscal-monetary policy ‘double act' which, so far, has buoyed asset prices with huge spending and very low interest rates," said Mike Coop, chief investment officer at Morningstar Investment Management.
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He added that despite the government's "loss of popularity", looming council elections, "more money than expected in the government's coffers and spiralling cost of living", the Chancellor "must remember that more government stimulus will put pressure on the BoE to raise rates - so we don't expect a free lunch of giveaways".
Energy prices
Quilter tax and financial planning expert Shaun Moore also expects Sunak to "splash some cash tomorrow" to tackle the cost-of-living crisis.
"The Chancellor has already unveiled an economic support package worth £9bn, but this was in response to an expected £18bn increase in domestic energy costs. Following the Russian invasion of Ukraine, domestic energy costs are expected to swell by an additional £43bn, according to the IFS. Without any additional support, we could well face a summer of discontent," Moore warned.
He said that while one option for the Chancellor would be to expand the previously announced energy support package, this would be expensive and "might not target those households most in need".
"Instead, the Chancellor may uprate benefits by an amount greater than the 3.1% currently pencilled in. The IFS estimates this would cost an additional £9bn for the Exchequer. Moderately cheaper and more targeted, but middle-income households may feel they've been left out in the cold," said Moore.
Laura Suter, head of personal finance at AJ Bell, pointed out that Labour has called for an extension to the Warm Home Discount scheme in response to rising energy bills, "which gives some low-income families £150 towards their energy bills".
"The Chancellor could increase the amount or expand the reach of the scheme. Labour is also calling for a windfall tax on oil and gas companies, with the money being redirected towards those who need it most. However, this is a politically fraught move that the Government has dodged so far," Suter said.
Green gilts
Suter also predicted the Chancellor could announce more green bond issuance in his Spring Statement, given that the government has already raised £16bn through its green gilt issuance, and "there's clearly still appetite to buy more of these green government bonds".
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"The money raised is used for projects like zero-emissions buses, offshore wind and schemes to decarbonise homes and buildings. The recent energy crisis has focused attention on the need for renewable infrastructure investment, so it makes sense that the Government would raise more cash for this cause," she added.
'Budget windfall'
The Chancellor should get a "budget windfall" in the Spring Statement, according to AJ Bell's head of investment analysis Laith Khalaf, with government borrowing at £25.9bn below the last official OBR forecast so far this year, and half the level it stood at last year, at "only" £138.4bn.
"VAT receipts are £23.8bn bigger this year, a result of higher prices in the shops, and revived consumer activity, combined with a rise in VAT for hospitality businesses. Fuel duty has brought in an extra £4.5 billion so far this year, which is no doubt why it might be targeted by the Chancellor as a way to alleviate pressure on household budgets," said Khalaf.
"The government is clawing in more money from income tax and National Insurance too, and these receipts are set to be turbo-charged from April when income tax allowances are frozen and National Insurance rates rise."
Andy Butcher, branch principal and chartered financial planner at Raymond James, warned that it is a "deceptively large tax rise which will disproportionately impact lower earners, equating to a hike of more than 10% in real terms, not the 1.25% advertised".
"Rumour has it Sunak is looking to soften the blow by increasing tax bands to remove an estimated 150,000 people from income tax altogether," added Butcher.
