Unlike recent fiscal events, this Autumn Statement largely focused on those on lower incomes, with an absence of measures specifically aimed at higher and additional rate…
Chancellor Jeremy Hunt delivered his first Budget on Wednesday 15 March, announcing a ‘full expensing’ policy to incentivise businesses to invest after the Super Deduction ends, while confirming that the headline rate of corporation tax would rise from 19 to 25% in April. Here are the key points of our analysis on the day…
Spring Budget 2023 summary
There were few surprises in Jeremy Hunt’s Budget Speech. There is a great deal in the Budget for accountants and tax advisers, and certainly plenty for us to discuss with our clients. Despite that, it did seem dull. That may have been the intention though, especially as most of the measures were trailed in advance and the delivery was soporific.
Once the pork barrel politics of many of the spending announcements are discounted, then there are only four substantive new financial measures, all of which are cash outlays by the government.
- A three-year full expensing (100%) of expenditure on new everyday plant and machinery and 50% on long-life plant and machinery – to encourage capital expenditure by companies. This is a cashflow benefit for companies rather than a tax break, but with a peak cost to the Exchequer of £11bn in 2024/25. Alongside an Annual Investment Allowance of £1m on all capital expenditure, and a boost to R&D tax relief for the life sciences, pharma and other tech sectors, this gives a much more generous level of tax relief on business investment.
- A significant increase in free childcare provision which will be available to all children over 9 months of qualifying parents, from September 2024. Together with changes to Universal Credit and before and after school childcare provision, this is designed to help encourage more parents (but principally mothers) to add to the workforce. This is being supplemented by other measures to try and encourage older or disabled individuals to work more, through benefit changes, training support and pension tax changes. By 2026/27, these measures will be costing around £7bn a year.
- A three-month extension to the Energy Price Guarantee costing £3bn in 2023/24.
- An increase in defence spending of £2bn per year (£3bn in 2024/25).
Like a good accountant, I’ve taken the key measures from the policy costings (the numbers published as part of the Budget papers). What is striking is that many of the more eye-catching parts of the Speech about spending on quantum computers and the like, do not feature. It looks like those are allocations of money that has already been committed to the industrial strategy in previous Budgets.
In my assessment, I’ve ignored fuel duty. Strictly, there is legislation that fuel duty will increase each year and so by not implementing that increase, the government says that it is cutting fuel duty, but it isn’t really. Fuel duty is simply carrying on unchanged.
You might feel that you’ve already heard about all these measures already – and certainly the energy price guarantee was pretty much announced a few weeks ago and the defence spending increase was announced by Rishi Sunak on his tour to the USA on Monday.
In implementing these measures, the government’s priorities are to cut inflation and boost economic growth. Not putting up fuel duty and the energy price guarantee extension both help to reduce inflation and are certainly sensible. The payback in terms of less debt interest being payable on inflation-linked government bonds is a sizeable saving in itself and the measures may even be self-funding. The other measures target economic growth by trying to boost business investment, with the expectation of improved productivity and expanding the workforce.
The government does seem to be finally arriving at an industrial strategy and that language was even used by Jeremy Hunt. However, the industrial strategy is reminiscent of ‘the white heat of technology’ and a ‘Bennite approach’ (that’s Tony Benn for those that are unfamiliar). In particular, the government’s computer strategy reminded me of the formation of ICL in 1968, which did at least fare better than the other government encouraged formation of that same year – British Leyland.
It does seem that the government’s fiscal strategy is increased taxation with more active intervention in the economy. That may well be the best approach for where we are right now, but it is an approach that has been out of favour for most of my life. Monetary policy didn’t get a mention though, and interest rates are the big story of the moment, especially across the Atlantic.
More specifically, for me, and our tax specialist teams advising our clients, there is plenty for us to get our teeth into. As well as advising on business investment and maximising claims for capital allowances, the pension changes are very important for our medical profession clients, for our professional practice clients, for clients with large pension funds with our financial planning arm and for those owner managed businesses wanting to mitigate corporation tax on profits and with sufficient surplus funds to build up large pension funds for the future.
Read more analysis in our Spring Budget hub.