15 Mar 2023
Spring Budget 2023
Chancellor of the Exchequer Jeremy Hunt MP has just delivered the UK’s Budget for 2023-24 to the House of Commons.
This was an explicitly growth-orientated budget, seeking to stimulate the economy through a combination of measures aimed at tackling labour shortages, tax incentives to invest in the UK, and regulatory change to support innovation. It reflects a growing confidence in the Sunak administration, but also a determination to reclaim economic competence after the dark days which followed the disastrous Kwarteng/Truss fiscal event just six months ago.
The key points to take from the Budget for include:
- Labour market: The Government has introduced a raft of measures to tackle economic inactivity, including introducing a significant package of childcare support, as well as measures to increase the number of older people, disabled people and the long term sick to get back into work.
- Investment incentives: The Government has introduced a number of incentives for businesses to invest in their own capital as well as R&D, including a new capital allowance to offset any capital expenditure against corporation tax – which will continue to rise next month.
- Tackling inflation: The Prime Minister’s target to halve inflation will be met, with inflation expected to fall to 2.9% by the end of the year, compared with 10.7% at the end of 2022. However, the economy is expected to contract by 0.2% this year.
Budget 2023 – Summary
- Outlook: The OBR has forecast that the UK will now not enter a technical recession this year. The economy will contract by an estimated 0.2%, with 1.8% growth expected in 2024, 2.5% growth in 2025, 2.1% growth in 2026 and 1.9% growth in 2027. The IMF judge that the UK economy is on the right track.
- Inflation: The OBR reports that inflation will fall from 10.7% in Q4 2022 to 2.9% by end of 2023. More than meeting the Government’s objective to half inflation. Reducing inflation remains a guiding principle in the Government’s approach to industrial disputes. Freezing fuel duty, the duty on beer, and keeping the energy cap at £2,500 in place for another three months will also help bring down inflation taking around 0.75 percentage points off consumer price growth.
- CPI will be lowered by 3% through the measures freezing various tax and duties.
- Departmental spending: The OBR says there will be a Budget in the final two years of forecast. The day-to-day departmental spending will grow at 1% a year on average in real terms after 2024-25 until the end of the forecast period, and capital plans are maintained at the same level set at Autumn Statement.
- Budget deficit: The deficit falls in every year of the Budget forecast. Deficit falls from 5.1% in 2023-24, to 1.7% in 2027-28. In the final years of the forecast, the UK will be in surplus, only borrowing for investment.
- National debt: Debt will rise to 97.3% in 2024-25, before falling to 94.6% in 2027-28. Meeting the Government’s pledge to have debt falling by fifth year of forecast.
- Devolved nations: The budget provides an additional £320m for the Scottish Government, £180m for the Welsh Government and £130m for the Northern Ireland Executive.
Promoting an “enterprise” economy
- Corporation tax: The tax will continue to rise as expected from 19% to 25% in April for large businesses – although only 10% of firms are expected to pay the full rate. This remains the lowest headline rate of the G7.
- Capital Allowance: This rise will be offset by a full expensing capital allowance replacing the super-duction. All investment in investment in IT equipment, plant or machinery will to be deductible from taxable profits for the next three years and is worth £9bn per year. The OBR says this will increase business investment by 3% every year.
- R&D incentives: Enhanced R&D tax credit for life science and creative industry SMEs. Qualifying businesses spending over 40% of their total expenditure on R&D will be able to claim £27 of every £100 spent back. Tax reliefs for film, TV and video gaming are also being extended.
Spreading growth “everywhere”
- Investment Zones: 12 new Canary Wharf style “investment zones” will be created across the UK, eight in England, with four more planned in Scotland, Wales and Northern Ireland. Initial areas include West Midlands, Greater Manchester, North East, West Yorkshire, East Yorkshire, Liverpool and Teesside.
- Local Investment: £200 million has been announced for local regeneration projects across England. £161 million in Mayoral authorities and Greater London, £400 million for new levelling-up partnerships.
- City Regions Sustainable Transport Settlement: A 2nd funding round was confirmed, which will allocate £8.8 billion over next five-year funding period.
- Mayoral Zones: Multi-year single settlements for the West Midlands and the Greater Combined Manchester Authority at the next spending review.
Supporting an increase in “employment”
- Childcare support: 30 hours of free childcare for all children over 9 months old will be provided, beginning from the moment maternity leave ends, to encourage young parents to return to the workplace. This will be in place by 2025.
- Childminder support: The Government will pilot incentive payments of £600 for childminders who sign up to the profession, and £1,200 for those going through agencies.
- Wrap around childcare: Schools and Local Authorities will be supported in providing wrap around care, with all schools to provide a full wrap around offer by September 2026, either on their own or in partnership with other schools.
- Pensions: Increase the pension annual tax-free allowance by 50% from £40,000 to £60,000. The Lifetime Allowance will be abolished. This change would stop 80% of NHS doctors from receiving a tax change and incentivise experienced workers to stay in work for longer.
- Disability: A white paper published on Disability Benefits Reform. Disabled benefit claimants will also be able to seek work without fear of losing financial support, which will abolish the Work Capability Assessment.
- Universal Support: In England and Wales, will fund a new program – Universal Support, which is a new voluntary employment scheme for disabled people.
- Older workers: The Education Secretary will introduce a new ‘returnships’ to help older workers re-join the labour market, while DWP’s ‘midlife MOTs’ will be expanded.
- Benefits: Universal credit sanctions will be applied more rigorously in order to encourage more people to get back to work. Anyone working below 18 hours will receive more support to help them get back into work.
- AI: The Government will launch an AI sandbox and work at pace with the Intellectual Property Office to provide clarity on IP rules so that generative AI companies can access the materials they need and work with Vallance’s successor to report before the summer on options around the growth duty for regulators. A £1million prize every year for next 10 years will also be presented to the person/team that does most ground-breaking AI research.
- Computing: £900m to meet the recommendations of the Government’s Future of Compute Review.
- Quantum: The Quantum Strategy will be published today and will set out Government’s vision to be world leading quantum enabled economy by 2033 with a research innovation programme £2.5 billion.
- Medical approval: The UK will leverage the MHRA’s global reputation to create the fastest route to market for innovative healthcare technologies. Medicines and technologies will be automatically approved by the UK where they have already been approved in the U.S., Europe or Japan. The MHRA will adopt a quicker regulatory approval process for new innovations over next two years to provide rapid market access and incentivise investment in the UK.
- Carbon Capture Usage and Storage: Up to £20 billion funding for early deployment of Carbon Capture, Usage and Storage (CCUS). This could capture 20-30 million tonnes of CO2 a year by 2030.
- Nuclear energy: Subject to consultation, nuclear power will be classed as “environmentally sustainable” in green taxonomy. Great British Nuclear will be launched to make sure 25% of the UK’s energy comes from nuclear by 2050, as well as bringing down consumer costs and providing opportunities for the nuclear supply chain.
- Small Modular Reactors: The UK’s first competition for nuclear SMRs will be launched the end of the year, with view to future co-funding.
- Fuel Duty: Fuel Duty will not be uprated with inflation; Chancellor will maintain the 5p cut and freeze the duty. This will be maintained for 12 months. Saving the average driver £100 in the next year.
- VED: The Government will uplift VED for cars, vans and motorcycles in line with RPI from 1 April 2023. VED on HGV’s will be frozen until 2023-24 to support the haulage sector.
- Alcohol Duty: From 1 August the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, a differential which will be maintained as part of a new Brexit pubs guarantee”, as Draught Relief is extended from 5% to 9.2%. One of the benefits of the Windsor Framework will mean that this will apply to Northern Ireland.
- Defence spending: £5 billion additional funding for the Ministry of Defence, £11 billion to be added over the next five years and will rise to 2.25% of GDP by 2025. This will then rise to 2.5% of GDP “as soon as fiscal circumstances allow”. This is above the NATO target for countries.
- Veterans Support: An additional £33 million over the next three years for the service provided to veterans, including support for those with serious physical injury resulting from their service and increasing the availability of veteran housing.
- Education: There will be a £3.1bn annual investment increase for schools, rising to £5.2bn by 2024-25.
- Charities: £100 million to support local charities and community organisations. £10 million will be given to the voluntary sector to tackle suicide.
- Community Infrastructure: £63 million fund announced for public swimming pool providers
- Potholes: £200 million investment in road improvements, including fixing 4 million potholes across England.
- Energy price guarantee: Support will remain at £2,500 per household until the start of July 2023 (an extra three months). This will save the average family a further £160 on top of the energy measures already announced and get them through the remaining colder months.
- Pre-Payment Meters: Government will bring pre-payment meter charges in line with comparable direct debit charges. This comes on top of OFGEM’s negotiation of a temporary suspension of the installation of prepayment meters, and will save consumers £45 per year.
What was missing?
- “Next Silicon Valley” plans were largely deferred to the Autumn Statement, following the collapse of SVB. This strategy will include measures to unlock investment from defined contribution pension funds, make the London Stock Exchange more appealing to investors, and compete the UK’s competitive response to the U.S. Inflation Reduction Act.