Budget 2023
UK to avoid recession, lifetime allowance axed
Chancellor Jeremy Hunt gave an optimistic assessment of the UK’s prospects, telling MPs that the country will avoid a “technical recession” in 2013 and that inflation will be down to 2.9% by the end of the year.
In his first Budget statement, Mr Hunt announced a package of measures aimed at bringing people back into the workforce, scrapping the Lifetime Allowance for pensions in order to deter high earners from retiring, and launching an ambitious childcare plan to help parents.
He responded to concerns in the pubs trade by cutting duty on draught beer to help them compete with supermarkets, and confirmed a number of pre-Budget pledges including the introduction of investment zones, a replacement tax allowance for the super deduction and the extension of the Energy Price Guarantee.
Announcing his “Budget for Growth” he said the OBR forecasts show that due to “changing international factors and the measures I take, the UK will not now enter a technical recession this year”.
He announced £4 billion of funding for free childcare for all under-5s in England – but it won’t be rolled out in full until 2025.
An additional £320m will be allocated to the Scottish government, £180m to the Welsh government and £130m to the Northern Ireland Executive.
Labour leader Sir Keir Starmer described the Chancellor’s “boast” about bringing down inflation as “ridiculous”. He said people see their tax burden at the highest level for 70 years..
He accused Mr Hunt of “dressing up stagnation as stability” and putting the country “on a path of managed decline”.
He said the economy needs major surgery, but the Budget “leaves us in the waiting room with a sticking plaster”.
Business leaders broadly saw the measures as helpful and positive, though limited in their range.
Sandy Begbie, chief executive of Scottish Financial Enterprise, said: “Overall, this budget signals a constructive long-term approach to changes needed in our economy and aligns with many of the priorities we have been calling for.
“In time, we would like to see greater ambition and more incentives for businesses to invest, not only in machinery and technology, but also in areas like net zero transition, greater inclusion, upskilling and reskilling.
“We are not yet seeing the level of strategic ambition in these areas as in other advanced economies around the world who are competing internationally for the same private sector capital investment.
“We know these priorities are also important to the Scottish Government and this is an opportunity for a renewed focus on collaboration and engagement between both governments and with business to help address some of the significant structural challenges Scotland faces, such as low productivity and skills gaps.”
Janine Hirt, CEO at Innovate Finance, said: “For the UK FinTech ecosystem, perhaps the most significant action was taken by the Chancellor this past weekend, with the collapse of Silicon Valley Bank, the immediate collaboration with industry and regulators, and the ensuing swift response to ensure the safety of so many of our most exciting and prominent UK businesses.
“This was a testament to the commitment of government to support the UK Tech sector and ensure we remain the best place in the world to start, scale and grow a FinTech business.’’
Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: “Measures to support the domestic workforce such as free childcare and return to work schemes are welcome but are unlikely to shift the dial quickly enough to address the immediate gap in the marketplace.
“That’s why businesses still need an immigration system that is agile and flexible to the needs of the economy.
“We have repeatedly said over the last year that Government must reform the Shortage Occupation List to help firms fill urgent job vacancies when they cannot recruit locally. Addressing this will unlock growth in the economy.”
Statement in summary
Cost of living: Inflation to fall to 2.9% by the end of this year.
Economy: The UK will not enter a technical recession this year, according to the Office for Budget Responsibility. Mr Hunt says: “We are following the plan and the plan is working”.
After this year the UK economy will grow in every year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027.”
Pensions: “No one should be pushed out of the workforce for tax reasons”. Abolishes the lifetime allowance, previously £1.07m. Pension allowance raised from £40,000 to £60,000. A comprehensive plan to remove the barriers to work
Tax relief: Confirms the replacement of the super deduction with ‘full expensing‘ which means that every pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits, making UK ‘the most generous allowance regime’. Full details here
Childcare: The Office for Budget Responsibility reckons that the expansion of free childcare in England “has by far the largest impact on potential output in this Budget”.
It calculates that the government plan to expand 30 hours of free childcare per week for youngsters aged between nine months and two years old will gradually add 60,000 people to the workforce.
In its report, the OBR believes that by 2027-28, these people will be working on average around 16 hours a week – so basically working part-time.
Money is allocated to the devolved nations and they can choose how they spend it, but at least some of the extra money is expected to be used for the same purpose. There has been some discussion of similar moves to extend childcare to one and two year olds within the SNP leadership campaign.
R&D Tax Credits: There is an enhanced R&D credit worth £27 for every £100 of R&D investment from 1 April. This is a partial row back from the previously announced reduction in the SME R&D benefit to £18.60 for every £100. To qualify, R&D spend incurred by companies will need to represent at least 40% of total expenditure and therefore this is very much focused on high tech businesses, which require the additional support.
It has also been confirmed that the new digital R&D documentation requirements will apply to all claims submitted from 1 August.
Richard Edwards of the R&D Community, said: “Recent cuts to the SME R&D scheme have proven deeply unpopular, so it was no surprise to see the Chancellor extend an olive branch towards ‘R&D intensive’ SMEs.
“However, this extra help is only available to loss-making SMEs and may introduce further complexity to an arguably over-complicated scheme. Overall, this Budget did little to reassure innovative UK SMEs that the Government is serious about supporting companies claiming for R&D tax relief in sectors outside the life sciences and AI.”
Nuclear power: Nuclear energy is to be classed as “environmentally sustainable” allowing it to qualify for the same incentives as renewable energy. Mr Hunt announced investment in new modular reactors.
Net zero: Up to £20bn of support allocated for the early development of carbon, capture, usage and storage, starting with projects on the East Coast, Merseyside and North Wales.
Mr Hunt said this will support up to 50,000 jobs, attract private sector investment and help capture 20-30 million tonnes of CO2 per year by 2030. No mention of north east Scotland project.
Fiscal targets: Britain is on track to meet the fiscal rules set by the government in November, according to OBR forecasts.
Under the rules, government debt must be falling as a percentage of economic output in five years’ time and the budget deficit must be below 3 per cent of gross domestic product within the same time-frame.
Beer price cut: Pubs get the benefit of a price differential with supermarkets as duty on draught beer sold in pubs will now be 11p cheaper.
Fuel duty: The Chancellor maintained the 5p cut and freezes fuel duty, saying it will save average driver £100 next year.
Energy bills: Mr Hunt confirms the Energy Price Guarantee will remain at £2,500 for the typical household for the next three months, saving the average family a further £160 on top of support measures already announced.
He is ending the prepayment “premium” – a system whereby those on pay-as-you-go meters are charged more than direct debit customers.
The Treasury estimates the policy will cost around £200million – but will save households using pre-payment meters around £45 a year.
Arts: Chancellor confirms £8.6 million to support the Edinburgh Festival.
Road repairs: £200m additional funding will be made available to tackle road ‘pot holes’.
Defence: £11bn is added to the defence budget over the next five years and it will be nearly 2.25% of GDP by 2025.
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