Today’s Spring Statement was set against a backdrop of rising inflation – now sitting at 6.2% according to the Office for National Statistics (ONS). The Office for Budget Responsibility (OBR) has also claimed that the impact of inflation is expected to result in the largest drop in living standards since ONS records began. The reality that inflation is now at a new 40-year high will focus minds as the cost of energy, fuel and food continues to rise.

The Government’s action on fuel duty, plans to reduce the basic income tax rate, scrapping VAT on energy saving insulation, doubling the household support fund and increasing the National Insurance threshold should be welcomed, but the OBR has pointed out it is too early to say what impact the war in Ukraine will have on the British economy – the ONS said today that the main driver of inflation last month was energy prices.

There is also caution from the OBR that positive news on unemployment has been “…offset by negative news…”[¹]  on participation in the labour market. Economic inactivity among those of working age is a cause for concern that needs to be addressed by a new longer-term strategy.

Ian Porée, employee owner and Chief Executive of Seetec, has responded to the Spring Statement, calling on the Government to better understand the underlying reasons behind the ongoing rise in economic inactivity and how it impacts the economy in the medium and long-term:

“The Chancellor is grappling with the consequence of the pandemic – a new rise in inflation is only one of the products of the economic shocks the economy has had to navigate in recent years. Labour market statistics earlier this month signalled a longer-term warning of the changing face of employment trends. The Government must act quickly to understand the increase in economic inactivity because this trend could impact the recovery. This is compounded by the Ukraine conflict and the lower growth outlook factored in by the Office for Budget Responsibility. Workers will welcome the plan to cut the basic income tax rate and increase in the National Insurance threshold as cost-of-living challenges continue to bite. Plans to cut tax rates on business investment will help incentivise key sectors of the economy to focus on growth.

“If the Government acts quickly to better understand the trend towards increased economic inactivity, it will be better placed to mitigate negative longer-term impacts. Seetec is encouraging the Government to commission research to explain the reasons for the numbers of people who are dropping out of the labour market. There is a risk that the recovery will stall if trends like increasing economic inactivity are not slowed or reversed and the impact on local resilience needs to be better understood.”

Read the Chancellor’s Spring Statement here.

[¹] Office for Budget Responsibility (March 2022), Economic and fiscal outlook: March 2022, page 11, available from: https://obr.uk/docs/dlm_uploads/CCS0222366764-001_OBR-EFO-March-2022_Web-Accessible-2.pdf

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