Spring Budget 2023 reaction

By Nick Batten on 16 March, 2023

Yesterday (15th March) Chancellor Jeremy Hunt unveiled his Spring Budget to Parliament with a clear focus on boosting business investment and growth. 

The main announcements included:

  • Childcare revolution to expand 30 hours free childcare for children over the age of nine months, alongside boosts to subsidised childcare for parents on Universal Credit including upfront support
  • A £27 billion tax cut for business through radical ‘full expensing’ policy and capital allowances reform which will drive investment and growth
  • Measures to ease cost-of-living burden will help more than halve inflation, with extension of Energy Price Guarantee and duties on fuel and a pub pint both frozen
  • A major set of reforms to support people into work, removing barriers that stop those on benefits, older workers, and those with health conditions who want to work from working
  • Inflation falling, debt down and growth up in Chancellor’s Spring Budget for Growth that delivers upon the Prime Minister’s economic priorities.

Achieving long-term, sustainable economic growth that delivers prosperity for the people of the United Kingdom, this Spring Budget aims to break down barriers to work, unshackle business investment and tackle labour shortages head-on.

A selection of local and national business leaders give us their thoughts…

Michael Blaken, Accounts Director at Swindon-based accountancy and law firm Optimum Professional Services

“Many of the Chancellor’s measures were announced ahead of the Budget, so we knew about the pensions reforms and childcare support packages, both of which are designed to remove barriers to people working. With such a high vacancy rate, and employers finding it hard to recruit, these announcements will be good news for business.

“The changes to pensions – increasing the amount that can be paid in annually and removing the lifetime allowance – could also benefit business owners, who might now be able to put more into their pensions and so mitigate their Corporation Tax liabilities. 

“Freezing fuel duty and energy relief measures will be welcome for businesses and individuals alike, and freezing the beer levy is always good news!

“Finally, if the OBR forecast is correct, and inflation does fall to 2.9 per cent by the end of the year, that will bring some stability to the economy and help businesses to plan with more certainty.”

Dave Southby of Dave Southby Financial Planning, based in Wroughton

“Overall, it was very positive. The big question answered was about the lifetime allowance. There was a lot of speculation on this leading up to the Chancellor’s announcement with many, including me, thinking the allowance would be going up. I did not expect it to be removed and it is certainly something I welcome. The pension annual allowance was also increased by 50%, from £40,000 per annum to £60,000, another very welcome announcement. 

“Also announced was the Money Purchase Annual Allowance (MPAA) will increase from £4,000 per annum to £10,000 per annum. This will give people more flexibility in retirement and will potentially allow them to pay more back into their pension if they return to work after retiring.

“Unfortunately, the Chancellor did confirm the increase in corporation tax which will affect many businesses. This increase stresses the importance of financial planning and reviewing other potential tax-efficient means of extraction i.e pensions, especially with the new relaxed pension tax rules.

“I really liked the announcement of childcare now being offered straight after maternity leave. I think this is going to relieve a lot of pressure on families and help women in particular get back into work. This is a huge barrier currently for many women.

“I feel the overall economic outlook looks very positive over the next few years, so fingers crossed we see the growth they’re expecting.”

Martin Gurney, Tax Partner with Haines Watts, Swindon

“As an adviser to owner-managed businesses, I see the challenges that they face on a daily basis. 

“Broadly speaking, two of the most significant of these are: (i) an increase in customers postponing purchase decisions due to inflation and fuel cost concerns; and (ii) difficulty in recruiting. 

“We were already relatively confident about the broad content of the Budget – the Chancellor had ensured that the principal elements had been pre-announced so as not to shock the economists, markets or the economy, and therefore we were also pretty confident that the Chancellor would maintain the conservative mantra that the Budget must be balanced in order to ensure continued economic stability.

“So what exactly has the Budget given us:

  1. The Chancellor announced that the Budget measures have been reviewed by the OBR (Office for Budget Responsibility) who were forecasting:
  • a fall in inflation to 2.9% by the end of 2023
  • a reduction in national debt over 5 years by 3% of GDP

“Hopefully, this helps boost confidence in the economy such that business activity levels begin to increase

“The Chancellor highlighted the fact that there are more than sufficient people in the UK capable of filling current job vacancies, therefore he needs to make it easier for those who want to get jobs and make it less financially beneficial for those who avoid work to continue to do so. He is attempting to do so by:

  • improving access to work for the sick, disabled and those with special needs
  • increasing child-care support 
  • removing the pension disincentive facing older so that their pension fund is not eroded by continuing to work 

“Hopefully, this helps reduce the number of job vacancies

  1. The Chancellor recognised that the government needs to help stimulate economic activity and growth, and therefore made the following changes:
  • a 100% tax deduction, without limit, for qualifying capital expenditure incurred over a three-year period
  • an enhanced R+D relief for companies spending more than 40% of their total outgoings on R+D activities
  • an increase in pension savings allowances from £40k p.a. to £60k p.a.

“Overall, no big ‘giveaways’ – instead, the Chancellor believes that stimulating confidence, encouraging full employment, and stimulating economic activity are the keys to long-term economic growth and stability. Time will tell if he’s right.”

Phil Smith, Managing Director of Business West

“The Chancellor has acted to address the ongoing tightness in the labour market, and the announcement of an expansion of the available free childcare for parents of one and two-year-olds in England was welcome, as was the set of other incentives for people with long-term sickness, disabled people, and the over 50’s. 

“Considering taxes and spending that directly affects businesses, the planned increase in corporation tax from 19% to 25% in April remains in place, but a new regime of capital allowances and other reforms will be introduced to harness investment. This is a step in the right direction.

“Although the three months extension of the Energy Price Guarantee for households’ energy bills is welcome, disappointingly the scaling back of support for businesses previously announced this year remains in place with no mention of potential changes. 

“As part of the government levelling up agenda, the Chancellor announced the introduction of 12 investment zones, plans for the development of local infrastructure and further devolution deals for local governments and Mayoral Combined Authorities.

“Regrettably, there was no specific mention of our region in plans for targeted boosts to local growth. However, the incentives announced for innovation, cyber, and nuclear energy could be beneficial for thriving regional industries in those sectors. 

“Overall, the return of a Budget that not only addresses immediate threats and includes measures aiming at future prosperity is a positive, but the government must commit to providing the stability and confidence needed by businesses to invest and grow the UK economy.”

Stephanie Hurst, Tax Director for Corporate Tax Consultancy and Personal Tax Compliance at Monahans 

“This was very much a ‘back-to-work’ budget that seemingly bounced over several key potholes. It’s hardly surprising that the ‘w’ word – windfall tax – didn’t leave Hunt’s lips and that the Corporation Tax increase didn’t receive much airtime, but extensions of energy support and new capital expensing policies were likely hogging the limelight for businesses.

Back to work… but not for everyone

 “Whilst the double whammy of abolishing the Lifetime Allowance, paired with an increase of the Pensions Annual Tax-free Allowance from £40,000 to £60,000 came out of the blue, before taking this as an all-round victory, it is likely only to impact a certain class of older worker. Clearly designed to ensure that highly skilled top earners such as doctors are not pushed out of work early due to pension inflexibilities, those on a lower income appear to have been forgotten. After all, who among us can afford to contribute £60,000 to their pension?

“For those who have left the labour market early, restrictions on the amount they can put back into their pension pots has been lifted from £4,000 to £10,000 which should encourage over fifties or early retirees back into the workforce.

A super-deduction substitution

“The chancellor conceded that ending the super-deduction without replacement would have been damaging for growth. If it does what it says on the tin, the newly proposed full capital expensing policy could be exceptionally beneficial to businesses, helping to reduce corporation tax rates and freeing up more money for recruitment, which can all be tied into a nice bow under this ‘back-to-work’ banner. However, as usual, the devil will be in the detail of exactly how this policy will work. What happens if a full expensed asset is sold, for example? Hopefully, the operation of the relief will become clearer in the coming days.

Energy support frozen but only temporarily plugging the hole

 “Although energy support is being extended, noticeably absent was any mention of curbs on energy company profiteering or windfall taxes. Revealing again an unwillingness to dig out the root of the problem and instead making do with a sticking plaster on the wound.

A positive outlook for Research and Development relief

“The R&D relief appears as an additional relief over and above where we are now, which signals another hugely positive move for home-grown science and tech businesses, at least on the surface of it. Again, I’m eager to dig deeper into how the 40% expenditure threshold will be calculated and how the claiming system will function before giving it the benefit of the doubt.”

Ramona Derbyshire, Head of the Thrings Business Growth Hub

“Chancellor of the Exchequer Jeremy Hunt unleashed a stinger for SMEs in his first Budget – an increase in the main rate of Corporation Tax, paid by businesses on taxable profits over £250,000, from 19% to 25%. Companies with profits between £50,000 and £250,000 will pay between 19% and 25%. 

“The hike, first mooted in 2021 by Rishi Sunak when he was “Chancellor, has been a political hot potato. Liz Truss tried to scrap it in her ‘mini budget’ in September during her short-lived stint as Prime Minister, but today’s announcement confirms that Rishi will get his way. 

“Tax rises are always hard to take, but the Budget contained several other announcements that will soften the blow for businesses. So, here are six reasons for SMEs to be cheerful: 

Better news on inflation and recession 

“There is still an uncertain economic landscape, but it looks as if the UK will avoid a dreaded recession – defined as two successive quarters of negative growth. That’s better news than many feared and a boost economically and psychologically for businesses, helping them face the challenges ahead with a level of optimism they may previously have lacked. 

“Expectations that inflation will drop from 10.7% in the final quarter of 2022 to 2.9% by the end of this year will also be welcomed as a possible sign that the cost-of-living crisis will ease, enabling more positive trading conditions for businesses. However, low inflation can be linked with low earnings and tighter consumer spending, and the economy is still predicted to shrink by 0.2% this year, so we’re still not out of the woods yet. 

A continued freeze on fuel duty 

“Most of us have suffered with horrifying prices at the pump, and a fuel duty freeze that has been in place since 2011 has not stopped those prices rocketing thanks to the war in Ukraine and other economic factors. So, while a commitment to continue to freeze fuel duty for a 13th consecutive year will be welcomed by businesses, especially those with large transport costs, it isn’t a game changer. 

“However, it is far more welcome than the alternative – at one point the Office for Budget Responsibility warned that a 23 per cent rise in fuel duty would be necessary, which would have raised pump prices by 12p per later. Businesses will have been pleased to see the Chancellor steer clear of that. 

More free childcare to get parents back to work 

“The cost of childcare is a very big deal for parents of young children and is believed to be a factor in the decisions of some parents – especially mothers – not to return to work after having children. Couple that with the problems many businesses are experiencing when it comes to recruitment, and you have a huge headache for employers with a direct impact on the bottom line. 

“Jeremy Hunt’s announcement of a major expansion of state-funded childcare should go some way to easing that problem. In a phased plan, up to 30 hours a week of free childcare will be available to households in England, and by the time the phasing is complete, this will kick in when a child is just nine months old. 

“It’s a huge benefit worth up to £6,500 a year for working families – and businesses should benefit from the increased spending power of parents with young children as well as being able to retain staff who may otherwise feel it’s not worth it to work. However, the plan won’t begin to roll out in April 2024, so the impact won’t be felt in the short term. 

Incentives for investment, research and development 

“We’ve already talked about Corporation Tax – but there are significant incentives that ease the tax burden for businesses that invest. Among the measures in the Budget is an increase in the Small Business Investment Allowance to £ 1 million. That means businesses can deduct the full value of any investment they have made from that year’s taxable profits, up to the value of £ 1 million. That applies to all kinds of investment in machinery, IT, cars, fixtures and more. The Government says 99% of businesses will benefit. 

“Also available for many SMEs is a credit worth £27 for every £100 they spend if they spend more than 40% of their total expenditure on Research and Development. Both these measures could significantly reward businesses that are prepared to invest in their own success. 

Commitment to low-carbon energy projects 

“Energy costs are a significant factor in the economic challenges facing businesses today. 

“The existing Climate Change Agreement scheme, which allows some businesses to claim tax relief on energy efficiency measures, is to be extended for two years, but the Chancellor acknowledged that ‘the long-term solution is not subsidy, but security’. 

“To support that the Government has pledged to invest in domestic sources of renewable energy, allocating up to £20 billion in support for ‘Carbon Capture Usage and Storage’ schemes alongside wind and solar energy projects. However, the decision to effectively categorise nuclear projects as ‘environmentally sustainable’ may prove controversial. 

“The intention is to secure more energy creation domestically, so UK prices are not at the whim of the international markets. If successful, this could result on lower energy bills for SMEs, although results are unlikely to be felt in the short term. 

Investment in AI and future technologies 

“Artificial Intelligence is the fast-moving technology of the moment, and following recent breakthroughs such as ChatGPT, it is seen as the future of computing. The Government wants to harness the huge potential of AI for business and the opportunities in the development of the technology itself in line with its ambitions to make the UK a worldwide leader in tech. 

“More streamlined Intellectual Property Rules and a new £1 million annual prize for AI research are designed to encourage innovators to grasp this opportunity. It is perhaps an example of the Government jumping upon current trends, but tech businesses will hope that the commitment is genuine and that the UK can steal a march on international rivals in bringing tomorrow’s computing technology to profitable use.”

Marco Forgione, Director General of The Institute of Export & International Trade

“We are pleased to see the Chancellor announce policies which will further strengthen levelling up in the nations and regions, which we called for in our letter to him prior to the Spring Budget. These new powers for UK mayors and combined authorities in skills, energy and infrastructure will benefit businesses and exporters while helping to address regional inequalities.

“The 12 new investment zones will also accelerate much-needed research and development in the UK’s ‘most budding industries’ and this is essential to ensure the UK remains competitive in trade in services. Over 50% of our members are in the manufacturing industry and they will be looking closely at what opportunities these investment zones will mean for them. We also look forward to providing insights and feedback to the government, in the coming months, in relation to their announced package of measures intended to simplify customs import and export processes for traders.

“However, despite many positives in the Budget, we hoped to see more specific support for MSMEs. A targeted industrial strategy that brings together a clearly defined import and export strategy is essential to this and the recent formation of the Department for Business and Trade should be an opportune moment to make this happen. We will continue to make representations to government to make this a reality and to discuss the formation of a specific government taskforce which considers the needs of MSME exporters in particular.”