Will the Spring Statement 2022 add more cash to British citizens?

The Spring Statement 2022 is eagerly anticipated because it is perceived as a promise of announcement of step-change response to the new evolving economic sentiment in the United Kingdom about the rising cost of living. It is not clear, of course, whether the Government will do anything this year given that rising inflation would mean higher borrowing costs for the Government spending, which would in turn reduce the available money or cash circulating in the economy if the spending would tighten. In such situation, the higher borrowing cost has a meaning of reducing the inflation, whereas any measures to reduce the costs of living could have the opposite direction. However, a mass injection of cash to the UK population may not be a bad idea if it is, perhaps, ring-fenced, like the energy bill rebate earlier this year. This was offered in a form of a loan, and hence, is not a true solution of adding cash to ease rising costs of living.

The Bank of England and the Chancellor of the Exchequer, therefore, need to have a lot of detailed analysis about how they control the Government finances and also how they ease new pressures on consumer spending from rising energy bills, which in many ways are the main item in the consumer spending basket, where the inflation has hit households really bad. The nature of inflation is, therefore, not demand driven, but is on the supply side, which does not require the inflation control measures like higher borrowing cost, because these would be meaningless if the key problem is the higher energy bills, unless the Government introduces selective borrowing rates for specific industries – something, which has not ever been done before, but, perhaps, is a better way for the Bank of England (and any central bank internationally) to manage the economy in the age of new technologies enabling real-time taxation and other automatic immediate payment processing.

This analysis allows to show that adding cash to the masses may not result in acceleration of inflation when the spending baskets have been reduced already and most consumers require a top up. For this reason, businesses always prefer some measures of increasing consumer spending in order to keep generating cash for themselves. Inflation adjusted salaries maybe one area of self-fuelled expansion, however, other mechanisms also included encouragement of high rate of consumer borrowing as this has become widely available and grew with the help of technological innovations. The consumer borrowing had almost doubled consumer spending temporarily adding more cash to businesses. However, consumers have to return their loans with interest, and hence, this game does not result in a true consumer spending expansion because this source of consumer spending is unsustainable, i.e., its benefits are only perceived by businesses as such whilst not being real.

Rishi Sunak’s announcement about increase in energy price cap has been met with a lot of sarcastic criticism in the social media due to his energy bill support being in reality a crude loan to households who would need to repay it in the future, and even from energy businesses themselves, like Octopus Energy, whose marketing team advised its customers to eat a lot of pepper or exercise with hula hoops to keep warm in the challenging circumstances. Mr Sunak, therefore, faces a problem of balancing the financial needs of British citizens whether they are employees or business owners, in a way, which might have not been experienced by any chancellor prior to him.

The UK Government has already done better than many other countries having introduced the Digital Services Tax last year, which has enabled it to tax multi-national corporations with bigger turnovers, which is why, perhaps, British citizens are eyeing the money for themselves. Despite this noble activity, they have only received a loan so far, which is, of course, following much grant aid during the Covid lockdowns, but this does not count, everybody believes, because the lockdown was the Government’s idea, too, i.e. they have created this liability for the taxpayers.

The economy needs some new solutions to the new tensions, including the rising cost of living. Whilst businesses innovate, there will be some lag, which means the economic shocks of today cannot wait to be offset tomorrow, they somehow must be solved within the given set of variables. This can only be done with better application of new technologies, which we propose results in income-based pricing for everybody with the aim to maximise business profits*. The actual total sum of this new precise economic mechanism is to be seen in the future; however, it will definitely help easing politically charged pressures like the rise of the cost of living and even in some way the SME business sustainability.

* International patent pending.