Last week, Rishi Sunak delivered his mini-budget and in this article we outline the key points and risk related considerations for businesses and the general economic conditions we are currently seeing.

Backdrop

The spring statement lands whilst the UK looks to recover from the instability of the last two years, which saw many businesses temporarily close and many more affected on other ways by the pandemic.

Although the worse of the pandemic is now behind us, the economy is facing issues including high inflation, supply chain issues, rising cost of labour and materials, inflation and hikes in energy costs which impact households and businesses alike. The mini budget aims to help address some of these issues. There are steps that business owners should also consider to help manage these changing risks to protect their business over the longer term.

State of the economy

  • The UK economy is forecast to grow by 3.8% this year, according to the Office for Budget Responsibility, a sharp cut from its previous prediction of 6.0%
  • The economy is then forecast to grow by 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026
  • The annual inflation rate was 6.2% in February, and is likely to average 7.4% for the rest of this year, but with peak of 8.7% in the final quarter of 2022
  • The unemployment rate is now predicted to be lower over the next few years than in the OBR's previous forecast in October
  • Debt as a percentage of GDP is expected to fall from 83.5% of GDP in 2022/23 to 79.8% in 2026/27
  • The government is forecast to spend £83bn on debt interest in the next financial year, the highest on record

Fuel, energy and living costs

  • Fuel duty will be cut by 5p per litre until March 2023
  • Homeowners installing energy efficiency materials such as solar panels, heat pumps, or insulation will see VAT cut on these items from 5% to zero for five years
  • Local authorities will get another £500m for the Household Support Fund from April, creating a £1bn fund to help vulnerable households with rising living costs
  • However, the OBR on Wednesday forecast that energy bills will rise by 40% again in October, if wholesale gas prices remain at the same level they are now

Taxation

  • The income threshold for at which point people start paying National Insurance will rise to £12,570 in July, which Mr Sunak said was tax cut for employees worth over £330 a year
  • Mr Sunak pledged to cut basic rate of income tax from 20p to 19p in the pound before the end of this Parliament
  • The Employment Allowance, which gives relief to smaller businesses' National Insurance payments, will increase from £4,000 to £5,000 from April

Business owner considerations

  • When it comes to property insurance, the cost of materials and labour is having a significant knock on effect on the cost of claims. Many materials have vastly increased in cost in the last year and this is being exacerbated by lengthy delays in availability. Labour costs have also risen. Businesses should talk to their broker to check their property insurance has the appropriate limits in terms of rebuild costs.
  • Claims on motor insurance, both for car and commercial vehicles, are being severely impacted by delays in parts and increased costs. Parts for cars and commercial vehicles are impacted by the supply chain issues, in particular due to the problems with semiconductor computer chips, and vehicles are often off the roads for months at a time if they are involved in an accident.
  • The cost of replacement vehicles is also a thorny issue currently. Waiting lists for cars and, in particular, commercial vehicles are extremely long. A recent What Car? article1 stated that vehicles that traditionally would have taken six to eight weeks now have delays of up to a year. Businesses reliant on vehicles to enable them to trade should speak to their broker to see how they can help manage these risks.
  • Supply chain problems continue to affect businesses ability to trade. Trade credit insurance can help manage the risk of non-delivery or delays in the supply chain. Businesses should speak to their broker who can advise them of options.
Sources:

1. https://www.whatcar.com/news/chip-shortage-delays-how-long-will-you-have-to-wait-for-a-new-car/n23449

Disclaimer

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.

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