The Chancellor of the Exchequer’s spring declaration has increased the amount people can earn before paying Social Security and reduced fuel consumption by 5p a litre.
Rishi Sunak was under pressure to act as household budgets come under pressure amid rising energy costs and rising household bills due to rising inflation.
The VAT rate on hospitality, food and non-alcoholic beverages was due to rise from 12.5% to 20% as early as April 1, and businesses were hoping Mr Sunak would change his mind and keep the lower rate. He didn’t, and many fear they won’t survive.
What do people think of his decisions?
The owner of the Orchard Tea Garden in Grantchester, near Cambridge, said he responded to the Chancellor’s statement with “incredible absolute anger”.
Charles Bunker says a 20% VAT rate could end his business. During lockdowns last year, it was only able to trade for 17 weeks and shut down four times, losing shares each time.
“I don’t know how a chancellor can increase VAT by 60% for companies like mine while banks get a 60% tax reduction,” he says.
“I’ll have to find an extra £55,000 a year if I don’t raise my prices.”
The changes Mr Sunak has made to the social security threshold and business tariffs will help him by £10,000 over the year, but that still leaves him £45,000 out of pocket.
He says his business has already “suffered from hyperinflation” over the past year, which has been “pretty stunning”.
Flour is up 90% and sugar is up 52% – plus his heating bill will rise to £3,000 from an average of £1,400 a month and staff costs have “gone through the roof”, he says.
Mr Bunker says he currently charges £8.80 for a cream tea, but raising his prices to ‘cover those costs without loss’, plus an increase in VAT, would bring the price to just over £10, which is his opinion was “unacceptable”.
“I don’t think that more than £10.00 for a cream tea is sustainable in this business when people are losing between £300 and £500 a month,” he said.
“My product becomes priceless, it barks completely, it is the economy of the madhouse.”
Justin Kempson, sales and innovation director at packaging company Charpak in Huntingdon, says he sees the cost of living crisis hurting business.
The company, which has been designing and manufacturing sustainable food and retail packaging for more than 30 years, saw its energy costs triple last October.
“It had a massive impact on profitability, I would say 80% of our profit for the last three months of the year was wiped out by these increased prices,” he says.
The prices of materials have doubled in some cases, which is also affecting food price inflation as the products “cost more on the shelf,” he says.
Mr Kempson says he didn’t expect the government to do anything in terms of financial support, but he was looking for help with “easy access to cheaper finance” and “government-backed loans”.
“He made some sort of announcement about tax breaks for business investments, but I’ll have to see what that means for small and medium-sized businesses before I can comment,” he says.
“The Social Security announcement is good for our employees, but there hasn’t been much for companies.”
Norwich German teacher Sam McEvoy welcomed the “small price drop” in fuel taxes but says other issues meant bills would remain high.
“I think we’re going to be paying for the pandemic and things that are happening around the world for a long time to come,” she says.
The teacher started cycling to work because gas is still “too expensive” and she couldn’t rely on public transport.
“Of course there are many people who have to use the car, maybe people with disabilities,” she says.
Her family has already made changes to their household expenses, reducing eating out from every week to “once, maybe twice a month.”
“We used to get a Hello Fresh subscription every month to help us eat healthy,” says Ms. McEvoy.
“We can’t afford that now… Grocery shopping has definitely increased.”
Part-time optometrist Pam Lee, who lives in Lower Gresham, north Norfolk, says she was in a “fairly fortunate” position as all her children have since left home.
“I’m just with my husband and we’re fine. We don’t have a mortgage,” she says, but worries how her children will cope with the additional costs.
“One of my daughters has to pay for childcare, and that’s expensive,” she says.
“And salaries are not increasing in line with the additional expenses. Obviously she has to have gas to get to work and the food bills, the heating… I worry about her future, they have it a lot harder than I had.
“They’re paying off their college loan while I had a scholarship… and was able to buy a house right away.
“I don’t think many younger people can get up the apartment ladder without the help of Mum and Dad’s bank and a deposit,” Ms. Lee adds.
Following his spring statement, Rishi Sunak said: “I cannot protect everyone from all the global challenges we face. [but] The policies announced today will put billions of pounds back into the pockets of hard-working families.”
The key announcements in the Chancellor’s statement drew criticism from the main opposition parties.
Shadow Chancellor Rachel Reeves accused Mr Sunak of not understanding the “scale of the challenge” facing families and households.
She said the Labor Party’s windfall tax policy would have allowed the Government to reduce VAT on energy bills and make support more generous for vulnerable people.
The leader of the Liberal Democrats said the spring declaration was a “total swindle” in which the chancellor “gave with one hand and took with the other”.
Sir Ed Davey said the Lib Dems had envisaged a much larger one-off VAT cut which would have cost the Treasury £18billion but would have given households £600 to “help revitalize the economy”.
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