As we approach the third anniversary of our first Covid lockdown, Wednesday, 17 March, saw Chancellor Jeremy Hunt rise to the Despatch Box to deliver the first Full Budget in 504 days. The Spring Budget 2023 is the first unaffected by the immediate impact of the pandemic since October 2018.
Over the past few years, we have had several fiscal statements and mini-Budgets, but never a full Budget Statement.
Against a Brexit backdrop, Covid flux, and domestic political instability, Hunt hopes his first full Budget Statement marks a return to a somewhat more normal footing for politics and the economy.
However, the Chancellor has plenty to deal with. Inflation, excruciatingly high fuel bills, stagnant growth, economic inactivity and the post-Covid damage to the public finances have not gone away.
- OBR Forecasts and the Public Finances
- “Back to Work” Measures
- Cost of Living, Childcare and Fuel Bills
- Business Taxation
- Pensions
OBR Forecasts and the Public Finances
The Chancellor began his “Budget for Growth” speech by saying he will deliver on an aim to make the UK one of the most prosperous countries in the world by removing barriers to investment, tackling labour shortages, breaking down barriers to work and harnessing British ingenuity.
He said the Office for Budget Responsibility (OBR) expects inflation to fall from a 10.7% high in the final quarter of 2022 to 2.9% by the end of 2023, achieving the Government’s aim of halving inflation.
The OBR no longer expects the economy to enter a technical recession, with the economy expected to shrink by 0.2% during 2023 before growing by 1.8% in 2024, 2.5%in 2025, 2.1% in 2026 and 1.9% in 2027.
Moving to the public finances, the Chancellor said that public sector net debt is currently 100.6% of GDP but expects to fall to 94.6% of GDP by 2027-28.
“Back to Work” Measures
The Chancellor declared that we currently have one million vacancies in the economy and seven million working-age adults who are not currently employed. Encouraging more people from this group into the labour market would be vital for growing the economy.
He announced various measures to get people back to work, including disability reforms and out-of-work benefits intended to remove certain constraints and disincentives to work.
He also noted that there are now three million working-age people over 50 who are not working – a figure that has increased by more than 300,000 since the pandemic. To tackle this, he announced further career support for the over-50s and a dedicated program of apprenticeships to be known as “Returnerships”.
Meanwhile, five occupations in the construction sector will be added to the Shortage Occupation List, making it easier for employers to employ skilled workers from outside the UK.
Cost of Living, Childcare and Fuel Bills
The Chancellor confirmed that the Government’s Energy Price Guarantee remains in place for three more months from April to June 2023, effectively capping a typical household bill annually at £2,500.
At the same time, he declared that fuel duty remains frozen and retained the existing temporary 5p cut for an additional year.
Another significant measure announced ahead of the Budget is the commitment to extending the provision for 30 hours of free childcare for the children of working parents to the parents of all preschool children aged from nine months. These reforms will phase in gradually from April 2024 to September 2025.
There will also be changes to staff-to-child ratios in nurseries and incentives for new childminders to encourage increasing provisions in the sector.
Business Taxation
The Chancellor announced two significant changes for businesses.
The introduction of a new “Full Expensing” scheme to help mitigate the impact of April’s increase in the Corporation Tax rate, which he confirmed will go ahead, and further reforms to Research and Development (R&D) Tax Relief.
1 April 2023 will see the Full Expensing introduced, replacing the Super Deduction. It allows companies to write off the total cost of qualifying plant and machinery investments in the year of the investment. The measure initially applies for three years, but the Chancellor said he hoped to make it permanent “when fiscal conditions allow”.
The Chancellor announced a significant increase in the relief available to loss-making R&D-intensive SMEs, which will now receive £27 from HM Revenue & Customs (HMRC) for every £100 of R&D investment.
Prompted by reforms, the move will take effect from April 2023 and reduces tax relief rates and tax credits available to some SMEs.
Additionally, the Chancellor announced the creation of 12 investment zones across the UK. In England, these zones can access funds worth £80 million over five years, with a five-year tax offer equivalent to Freeports.
The zone locations are in the East Midlands, Manchester, Liverpool, the North East, South Yorkshire, Tees Valley, the West Midlands and West Yorkshire, as well as Wales, Scotland and Northern Ireland.
Pensions
In a surprise move, the Chancellor announced that the Pensions Lifetime Allowance will get scrapped entirely in April 2023. At the same time, he also increased the Pensions Annual Allowance from its current level of £40,000 up to £60,000 from April 2023.
