Jeremy Hunt announced his second fiscal statement and first
Budget since becoming Chancellor against a backdrop of fragile public finances,
an ongoing cost of living crisis, and increased Government borrowing.
In January, the Chancellor appealed to the nine million
‘economically inactive’ people in the UK, specifically retirees, claiming: “to
those who retired early due to the pandemic, or haven’t found the right role
after furlough, I say Britain needs you.”
Ahead of time, then, we expected the Chancellor’s speech –
dubbed the ‘back to work Budget’ by the media – to focus on the Government’s
economic priorities: halving inflation, growing the economy, and reducing
national debt.
With a surprise surplus of £5.4 billion in January due to
record self-assessment tax payments, and year-to-date borrowing undershooting
the Office for Budget Responsibility (OBR) forecast by £30.6bn, the question
has been whether Hunt would pay off some of what the UK owes, or funnel it back
into the economy.
With that in mind, the Chancellor’s speech highlighted a
plan of two halves: a series of short-term measures designed to provide
immediate support to businesses and households, and a longer-term strategy for
growth.
But how does his Budget stack up against the Government’s
priorities – and what does it mean for people and businesses across the UK?
Important information
The way in
which tax charges (or tax relief, as appropriate) are applied depends upon
individual circumstances and may be subject to change in the future. The
information in this report is based upon our understanding of the Chancellor’s
2023 Spring Budget, in respect of which specific implementation details may
change when the final legislation and supporting documentation are published.
This
document is solely for information purposes and nothing in this document is intended
to constitute advice or a recommendation. You should not make any investment
decisions based upon its content. Pension eligibility depends on individual
circumstances.
While
considerable care has been taken to ensure that the information contained within
this document is accurate and up-to-date, no warranty is given as to the
accuracy or completeness of any information.
Personal Changes
Back to work
The number of 16 to 64-year-olds in employment has failed to
return to pre-pandemic levels, with 8.86m “economically inactive” people not
currently seeking paid work.
Meanwhile, the number of job vacancies remains high at 1.1m
– 328,000 more compared to early 2020 – meaning that fewer people are working
and paying taxes than there could be.
To increase worker participation, Hunt announced his plan to
“remove the barriers” to work for groups including older workers, parents and
people with health conditions, causing many to dub the announcement as a ‘back
to work’ Budget.
Pensions lifetime allowance
In the run-up to the Budget, many speculated that Hunt would
increase the pensions lifetime allowance (LTA) to allow people to increase the
amount they receive in retirement.
Instead, he scrapped the limit altogether, claiming this
would incentivise over-50s to work for longer.
The LTA is the total amount you can put in your private
pension pot before tax. The cap was due to stay at £1,073,100 until 2026, but
workers will now be able to make unlimited pension contributions during their
lifetime.
Meanwhile, the annual allowance – the maximum tax-free
amount people can pay into private pensions per year – will rise by 50% from
£40,000 to £60,000.
According to the British Medical Association, the current
LTA rate is “punitive”, and encourages senior doctors to leave the NHS.
Hunt hopes that abolishing the LTA and raising the annual
allowance will address doctors’ concerns, as well as encourage older workers
across the UK to return to the workforce.
However, some believe that these measures will only benefit
top earners.
Expansion of free childcare
The Chancellor also announced significant reforms to
childcare to encourage parents to return to work.
Working parents of children aged three to four are currently
entitled to 15 hours of free childcare a week, or 30 if both parents are in
work and earn at least the national minimum wage. However, the same support is
not available for parents earning more than £100,000 a year in combined income.
The Government will expand this support to working parents
of children over the age of nine months by September 2025.
Childcare in the UK is among the most expensive in the
world, with average full-time nursery fees for a child under two standing at
nearly £15,000 a year.
According to the Treasury, increased access to free
childcare will reduce discrimination against women, who disproportionately take
on care responsibilities, and “benefit the wider economy”.
However, the phased nature of these reforms means they will
not come into effect until April 2024 at the earliest, so many parents of young
children will not benefit.
The Chancellor also pledged more “wrap-around” care for
working parents, bookending school days to allow parents to work longer hours
without incurring costly childcare bills.
Returnerships
Hunt will also launch a ‘returnerships’ programme that will
offer skills training tailored for the over-50s, taking previous experience
into account.
The Government will add a further 8,000 places per year (an
increase of 14%) to its ‘skills bootcamps’, which reskill people in sectors
such as construction and technology.
Energy support
Following pressure to provide extra support for households
struggling with soaring energy bills, the Chancellor announced a three-month
extension of the energy price guarantee.
At the moment, the scheme caps the average household’s
energy bills at £2,500 a year. This limit was due to rise to £3,000 from April
2023 onwards.
However, Hunt’s announcement means energy bill support will
continue at the same levels until the end of June.
Despite previously saying there was “no headroom” for
increased energy support, Hunt said: “With energy bills set to fall from July
onwards, this temporary change will bridge the gap and ease the pressure on
families, while also helping to lower inflation too.”
Customers on prepayment metres will see energy charges
brought into line with prices for customers who pay via direct debit. However,
the £400 discount from the Energy Bills Support Scheme will end as planned.
Business Changes
Capital investment
With the annual super-deduction due to end before the start
of the new tax year, the Chancellor has announced that the Government will
introduce a “full expensing” scheme to encourage companies to invest in plant,
machinery and technology.
From 1 April 2023 until 31 March 2026, companies across the
country will be able to claim back 100% of their qualifying costs. For the next
three years, the Government says 99% of companies will be able to immediately
reclaim every pound invested.
The Chancellor also said the Government plans to make this
measure permanent (if the economy allows) post-2026, adding that the policy
will make the UK’s capital allowance regime “the joint most generous” of any
advanced economy.
He said: “If the super-deduction was allowed to end without
a replacement, we would have fallen down the international league tables for
tax competitiveness and damaged growth. I could not allow that to happen.”
R&D tax relief
During the Autumn Statement in 2022, the Chancellor
announced measures to reduce fraudulent research and development claims by
lowering the amount SMEs can claim in R&D expenditure.
In the Spring Budget, however, Hunt said the Government will
introduce a new scheme for loss-making, “R&D intensive” SMEs. Companies
that spend at least 40% of their total expenditure on R&D will be
considered R&D intensive.
These R&D-focused SMEs will be able to claim a higher
payable credit rate of 14.5% rather than the reduced 10% announced in the
Autumn Statement.
In practice, this means they’ll be eligible to claim back
£27 for every £100 they spend.
The changes are part of a £1.8bn support package for
development and investment in the UK’s tech-pioneering companies.
Consultations into the merging of the R&D expenditure
credit (RDEC) and SME R&D schemes have now closed and all responses are
currently under consideration. The Government says this may still be a
possibility come April 2024.
Investment zones
The Chancellor followed up with more details on the
investment zones announced in November’s Autumn Statement.
The refocused investment zones programme will focus on 12
growth clusters across the UK, including four across Scotland, Wales and
Northern Ireland.
Each English investment zone will have access to
interventions worth £80m over five years, including tax reliefs and grant
funding.
They will be focused on one of a series of key sectors:
technology, creative industries, life sciences, advanced manufacturing and the
green sector.
Eight areas in England have been shortlisted for the
investment zones – the East Midlands, Greater Manchester, Liverpool, the North
East, South Yorkshire, the Tees Valley, the West Midlands and West Yorkshire.
The Chancellor said: “To be chosen, each area must identify
a location where they can offer a bold and imaginative partnership between
local government and a university or research institute in a way that catalyses
new innovation clusters.
“If the application is successful, they will have access to
£80m of support for a range of interventions including skills, infrastructure,
tax reliefs and business rates retention.”
Hunt also set out plans to invest £200m in local
regeneration projects across England and £400m for new levelling-up
partnerships.
Corporation tax rises as
expected
As previously announced, the corporation tax rate will
increase from 19% to 25% in April 2023 but with marginal relief for businesses
with profits between £50,000 and £250,000.
According to Hunt, only 10% of companies will pay the 25%
rate, and the UK has the lowest rate of corporation tax in the G7.
Other Announcements
Fuel duty
Fuel duties will be maintained at current levels for an
additional 12 months, cancelling the planned increase in line with inflation
for 2023/24.
The Government will spend over £5bn maintaining fuel duty at
current levels for the next 12 months, including keeping the 5p cut in place.
The rates will stay “in the long term under review,
including carefully considering support for motorists, fiscal implications and
use of fuels”, the Treasury wrote.
Tax simplification
The Government will collaborate with businesses and
representative bodies to review tax guidance for small businesses over the next
two years to help them interact with the tax system.
Guidance will be “clear, simple and easy to find, introduce
step-by-step interactive guidance and modernise HMRC forms to improve the
customer experience”, the Treasury wrote.
Meanwhile, the Government will consult on expanding the cash
basis, which is a simplified way for sole traders to calculate and pay their
income tax.
It will also work to support better digital communication
with taxpayers and deliver IT systems that enable tax agents to payroll
benefits-in-kind on behalf of employers.
Energy subsidy and
security
Affirming that an enterprise economy “needs cheap reliable
energy”, Hunt announced an extension to the climate change agreement scheme for
two years to allow eligible businesses £600m of tax relief on energy efficiency
measures.
He also allocated up to £20bn for early deployment of carbon
capture, usage and storage (CCUS) – “paving the way for CCUS everywhere across
the UK as we approach 2050”. A shortlist of projects can enter a selection
process later this year.
AI competition
One of Hunt’s main goals for the country’s future is an
investment in advancements of groundbreaking artificial intelligence (AI)
technologies.
The Government plans to award a £1m prize every year for the
next 10 years to researchers that drive progress in critical areas of AI.
Charity support
The Government is providing over £100m of support for
charities and community organisations in England for those most at risk due to
increased demand from vulnerable groups and high delivery costs.