Wednesday 15 March 2023 saw the Chancellor of the Exchequer, Jermery Hunt, deliver his first official budget, following his November Autumn Statement which was, in essence, a budget in all but name.
The ethos of his announcements revolved around what the Chancellor called his four ‘E’ pillars: Enterprise, Education, Employment and Everywhere and was focused on halving inflation, growing the economy and reducing public debt.
Many of the announcements had been leaked ahead of time with perhaps the largest single policy move being the confirmation of the Government’s long-announced increase in corporation tax which we covered last June in our blog ‘Is corporation tax going up?’.
Other policies widely leaked included the continuation of support with energy bills, freezes to fuel duties on petrol and diesel and a raft of measures aimed at getting people who are deemed to be ‘economically inactive’ back into the workforce.
Beyond the leaks, there was also a much-welcomed boost for the hospitality sector as pubs cheered with what the Chancellor called a “Brexit Pubs Guarantee”; Draught Relief being extended to 9.2% (although other alcohol taxes will rise in line with inflation) and also an announcement of a further £200m to fix potholes!
The main focus of this Budget was on the UK's workforce - or rather that element of the UK workforce that finds itself ‘economically inactive’.
One of the big headlines was the Office for Budget Responsibility (OBR) now forecasting that UK inflation will fall to 2.9% by the end of 2023; still above the Bank of England target, but significantly lower than what we have been experiencing over the past 12 months.
The OBR also said that the UK economy will avoid a ‘technical’ recession in 2023. This simply means that it does not think that there will be two-quarters of consecutive ‘negative growth’ - the economy is, however, still forecast to shrink in 2023.
In November 2022 the OBR forecasted that the economy would shrink by 1.4% this year but now says that the reduction will be much smaller at only 0.2%. It has also upped its growth forecast for 2024 from 1.3% to 1.8%.
The forecasts for growth thereafter have been reduced, but the short-term picture is looking much better than just 4 months ago.
This could lead one to ask how accurate the forecasts are - either now or then?
Business and Tax
The headline grabber here remains the increase in corporation tax although the Chancellor did offer some relief by announcing a policy of “full capital expensing”, for at least 3 years, which will allow firms to write off all investments against their tax bills.
We don’t yet have the full details, but the early indication is that the investment will need to be related to plant and machinery, which broadly, includes computers, lathes, office equipment, vans and lorries and construction equipment (contact us for a full list).
The duties on petrol and diesel have been frozen again and the temporary 5p cut in fuel duty announced last year has been maintained. There were fears that the temporary cut would end next week which would have meant an 11p increase in per litre cost if an inflationary rise had also been actioned.
As it is, fuel duties have now been frozen since 2011.
The Budget also contained a number of policies aimed at encouraging more people who are ‘economically inactive’ to either enter or return to the workforce.
This includes a new voluntary employment scheme for disabled people and a £400m scheme to increase the support available for mental and physical health challenges faced by workers.
For those already retired, the Chancellor announced “mid-life MOTs” from the Department for Work and Pensions to help the over-50s assess their financial situation, together with a new apprenticeship scheme.
The annual limit on tax-free pension contributions will be increased from £40,000 - £60,000 and the lifetime cap on pension contributions is to be scrapped.
There was also good news for parents of young children with wide-ranging reforms to free childcare in England.
[Note: comparable funding will be provided to Scotland, Wales and Northern Ireland but no announcements have been made in this respect.]
All parents with children aged between 9 months and school age will be offered 30 hours of free government-funded childcare each week; parents who claim Universal Credit will also see the amount that they can claim for childcare costs increase significantly, by just over 47%.
The introduction of the new childcare funding is, however, staged from April 2024 until September 2025. ATN Partnership is not a benefits advisor, so we suggest starting with our old friend, The Money Saving Expert.
£20bn investment in carbon capture and storage
Defence spending increased by £11bn over the next 5 years
12 new investment zones across (mainly) the North of the UK
Public leisure centres and pools will share £63m to help fund increased energy costs
£200m to help fix potholes!
Views and comments
Niyi Idowu, partner at ATN Partnership said:
“So much of this Budget had been leaked beforehand it was, in essence, like #Spare - everyone knew what was in it.
“We do welcome the support for families and think that the expansion of childcare can start to help with the employee shortages many of our clients are facing. The ‘full capital expensing’ that the Chancellor has promoted looks much more nuanced than we were led to believe upon first reading.
As ever, we’re still digesting, but it looks like a bit of a non-event for most owner-managed businesses in Kent.”
Tahmina Ahmed, Senior Client Manager at ATN Partnership, said:
“The support for pubs is always welcomed and anything that helps to address recruitment for Kent owner-managed businesses, I completely endorse.
“I’m disappointed that the increase in corporation tax has gone ahead as the marginal rate that many of our clients will now pay is, oddly, higher than the published full rate of 25%. Also, the ‘full capitalised expensing’ that is apparently designed to mitigate the increased tax is something that we are now looking at in detail - the wording is much more ambiguous than we’d like.”
The Confederation of British Industry (CBI) broadly welcomed the Budget announcements, particularly those focused on easing staff shortages within the UK economy and the provisions allowing companies to write off capital expenditure to help mitigate the increase in corporation tax.
Matthew Fell, CBI Interim Director-General said:
“This Budget is a strong second act in the Chancellor’s plan for stability and growth.
“The CBI called for action on people and productivity and the government has delivered support for both.”
He also welcomed what he called the action on “reducing economic activity and easing a tight labour market.”
But the Federation of Small Businesses said smaller businesses would feel ‘short-changed’ by the budget and accused the government of focusing on big business and households while ‘overlooking’ the 5.5m small businesses in the UK.
Martin McTague, national chair of the Federation of Small Businesses (FSB), said:
“The Chancellor has set high expectations for supporting small firms during these challenging times, but today’s Budget will leave many feeling short-changed. The distinct lack of new support in core areas proves that small firms are overlooked and undervalued.”