Budget 2023 summary

Chancellor Jeremy Hunt delivered the Spring Budget, which he called his ‘Budget for Growth’. Focusing on the four ‘Es’ of everywhere, enterprise, employment and education, Hunt announced measures – most of which had already been heavily trailed – including a three-month extension of the Energy Price Guarantee, an expansion of free childcare covering children from nine months old, and the launch of the Full Expensing Capital Allowance scheme, which will let businesses deduct 100% of the cost of IT, plant and machinery investment from their profits before tax.).

There was, as you may already be aware, very little on offer for small businesses. There was no specific further action on energy bills, beyond the previously-announced Energy Bill Discount Scheme, which comes into effect from April. While some operators may benefit from the Full Expensing Capital Allowance Scheme, the terms are less generous than the super deduction it is designed to replace (FEA had asked for a retention of the 130% Super Deduction for energy-efficient equipment on the ETL Scheme); and the Chancellor confirmed that corporation tax will rise from 19p to 25p from April as planned. HMRC have, however, committed to reviewing guidance and forms for small businesses, with the aim of simplifying the tax system.                         

Below is a summary of the core measures he announced accompanied by Headland’s analysis of what the Budget means.

You can read the full Red Book here and the Office for Budget Responsibility (OBR) forecasts at this link.

Spring Budget 2023

Hunting for Growth It’s hard to beat ‘no recession’ as a top line for a Budget, and Jeremy Hunt wasted no time at all today in delivering the good news he had received from the Office for Budget Responsibility. Instead of the longest recession in living memory, something we were told to expect barely a few months ago, the Chancellor could announce improved growth prospects (albeit with the economy still contracting this year), lower inflation and unemployment and - as a result - had a bit more money to spend without breaking his fiscal rules. 

He spent it in three traditionally Conservative ways - increasing the defence budget, tax breaks for some pension savers, and business investment - and two more modern: continued support for energy bills and free childcare for parents with young children. 

There was a small sprinkling of cash for pet projects: heating public swimming pools, support for military veterans, filling potholes and some levelling up cash. The Chancellor announced a tax break for draught beer (‘ale is warm but duty on pints is frozen’), an increase in the tax on cigarettes and a continued freeze in fuel duty.

Quoting freight boss Eddie Stobart, he announced new welfare reforms designed to help older people and those suffering ill health to get back into work. There was a nod to the green agenda with Carbon Capture and Storage and some nascent plans for small modular nuclear reactors.

If it sounds like something of a holding pattern Budget, that’s because it was. We’re too soon in the economic and political cycles for pre-election giveaways. And after the fireworks of last year’s ‘Kami-Kwasi’ Budget, today’s fiscal statement was always going to disappoint in pure news terms.

Mr Hunt won’t mind that a bit, of course. Indeed, anyone who makes a point of announcing an ‘AI Sandbox’ is clearly happy to revel in the boring but purposeful. 

Labour were happy to have something to swing at: Keir Starmer attacked the pension tax plans for benefitting the well off and borrowed a good Ronald Reagan line to ask if people feel better off. They don’t of course: and the OBR has average incomes falling around 5 per cent and house prices by ten per cent.

But Mr Hunt can play for time and – assuming the economy rebounds as predicted and there’s no widespread banking wobble - save his fiscal ammunition to pay for tax cuts next year.

Economy stats

• GDP is forecast to fall by 0.4% for the first quarter of 2023, before flatlining in Q2, and beginning to rise in Q3 and 4, avoiding a technical recession. The OBR expect to see an overall contraction of 0.2% for 2023, caused by a fall in private consumption, business investment and net trade. Expectations are better in comparison to the November 2022 forecast, largely due to lower expectations for wholesale gas prices and interest rates. GDP is expected to rise by 1.8% in 2024, and 2.5% in 2025 as interest rates and inflation begin to fall.
• Inflation is forecast to fall faster than previously expected, to 2.9% by the end of 2023 from a peak of 10.7% in 2022. The fall is larger than expected compared to the November 2022 forecast, due to measures outlined in the Budget, as well as a fall in wholesale gas prices. Inflation is expected to oscillate between 0% and 1% until 2027, when it begins to rise closer to the 2% target.
• Unemployment is predicted to rise, however less sharply than expected. The headline rate is expected to peak at 4.4% in 2024, lower than the 4.9% previously predicted.
• The deficit is predicted to fall from 5.1% this year, to 1.7% in 2028, with day to day spending reaching a surplus by the end of the decade.

Summary of Measures

Cost of living support

• Energy Price Guarantee:  The Government announced that the Energy Price Guarantee will remain at £2,500 for the next three months, ahead of an expected fall in prices in July. This will save the average family £160 on top of other Energy support measures per month.
• Pre-payment meter bills: Following Ofgem’s agreement of temporary suspension of forced installations of pre-payment meters, the Government will bring those prices in line with comparable direct debit charges, in order to address the energy premium on the poorest households.
• Fuel Duty: Will be frozen for the next 12 months and not uprated in line with inflation, saving the average driver £100 next year.
• Free childcare: The Government announced it will provide 30 hours of free childcare for eligible working parents of children from 9 months until they start school, in order to support with the cost of living crisis in removing one of the biggest barriers parents face in returning to work, as well as supporting education for the youngest children.
• Charity and swimming pool support: In order to support communities impacted by the cost of living, the Government has committed to providing over £100 million to support charities and community organisations and over £60 million to support public swimming pools, particularly with energy bills, in England.

Personal Tax

• Pension Tax: The Government has announced it will increase tax relief on pensions. The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024, and the Annual Allowance will be raised from £40,0000 to £60,000. These reforms will help ensure that high skilled individuals such as NHS clinicians are not disincentivised from remaining in the workforce.
• Income Tax: The Government has published a document on modernising HMRC’s Income Tax services so taxpayers can more easily manage their own tax affairs online, reducing the need to contact HMRC.
• Income Tax (Sole Traders): The Government has announced a consultation to expand the ‘cash basis’, a simplified way for over four million sole traders to calculate and pay their Income Tax, as well as a systematic review of HMRC guidance and key forms for small businesses to ensure the tax system is easy for them to understand.

Business Tax

• Corporation Tax: The Government has committed to increasing Corporation Tax to 25% as of April 2023, a rise of 6%.
• Super Deduction: Whilst the tax super deduction is set to come to an end on 31^st March 2023, the Chancellor today announced two new capital allowances to replace the deduction. The measures will be temporary, and effective from 1^st April 2023 – 31^st March 2026, with the intention of becoming permanent once government finances allow. This is expected to increase business investment by 3% for every year in place.
• Full Expensing Capital Allowance (FE): The first measure to replace the super deduction, FE will let businesses deduct 100% of the cost of IT, plant and machinery investment from their profits before tax. Similar to the super deduction, FE results in a 25p tax saving for every £1 invested.
• 50% first-year allowance (FYA): The second measure to replace the super deduction, FYA allows taxpayers to deduct 50% of the cost of other plant and machinery (special rate assets) from their profits during the first year of purchase.
• Tax Simplification Package: The Government announced a series of changes to simplify the tax system for small businesses. The changes include a simplification of the process to grant options for the Enterprise Management Initiatives Scheme, delivery of IT systems to enable tax agents to payroll benefits in kind on behalf of their clients and consulting the Help to Save scheme.
• Tax Simplification Consultation: Hunt also announced a commitment from HMRC to review guidance and forms for small businesses, with the aim of simplifying the tax system. Furthermore, a consultation will be launched on simplifying income tax for smaller sole traders.
• Alcohol duty: Duty rates of all alcoholic product will increase in line with RPI from August. Draught relief will increase from 5% to 9.2% for beer and cider draught products and from 20% to 23% for wine, spirits based and other fermented draught products, from 1 August 2023.

Innovation and Research & Development (R&D)

• R&D Tax Relief: From 1 April 2023, the Government will introduce an increased rate of relief for loss-making R&D intensive Small and Medium size Enterprises. Eligible companies will receive £27 from HMRC for every £100 of R&D investment.
• R&D Spending- Digital Technologies: The Government will invest, subject to the usual business case processes, in the region of £900 million to build an exascale supercomputer and to establish a new AI Research Resource, with initial investments starting this year. The Government will also award a £1 million prize every year for the next 10 years to researchers that drive progress in critical areas of AI.
• Quantum Strategy: The Quantum Strategy outlines the Government’s commitments to the sector, including a new and ambitious ten-year £2.5 billion quantum research and innovation programme. The Government has allocated £100 million funding for the Innovation Accelerators programme to 26 transformative R&D projects.
• Medical Technologies: The Government has allocated £100m funding for the Innovation Accelerators programme which will fund 26 R&D projects.

Education & skills

• Free childcare: In order to incentivise parents back into work, the Government will provide 30 hours of free childcare to all eligible working parents with children under the age of three. The programme will be rolled out in phases, beginning at 15 hours in April 2024, before eventually increasing to 30 hours by 2025. Childcare costs will be paid upfront for working parents, with a maximum allowance of £951 for parents with one child, and £1630 for parents with two children.
• Childcare: The Government will also be increasing the supply and flexibility of childcare available. They will invest £204m in nurseries and will increase the minimum child-staff ratio from 1:4 to 1:5. They will also pilot incentive payments for childminders, with £600 for new childminders and £1200 for agency childminders. They will invest £289m in schools and local authorities to boost wraparound care, targeting a goal of wraparound care from 8am-6pm for all UK schools by 2026.
• Education: The Government plans to boost the retention of vital skills in British schools, so will be implementing compulsory mathematics learning for all pupils below the age of 18. They will extend support to alternative provision schools to improve the engagement of vulnerable children with education and will also continue with the rollout of T Levels, Skills Bootcamps and the Lifelong Loan Entitlement, providing young people with the resources they need to build their skills throughout their lives.
• Supported Internships: To support more young people into employment, the Department for Education will invest an additional £2m into the expansion of the Supported Internships Programme, which provides specialist support to young people with special educational needs.
• Apprenticeships: In order to reduce the number of economically inactive over 50s in the UK, the Government will be rolling out a ‘Returnership’ programme to provide older people the opportunity to study, retrain and upskill later in life. The programme will involve shorter training periods, focusing more on flexibility and previous experiences. This will be backed by the accelerated rollout of Skills Bootcamps and Sector-Based Work Academy Programme placements for over-50s, supported by £63m in funding.
• Disability Support: The Government wants to ensure that all disabled people who want to work are able to do so. They will fund a Universal Support programme to help disabled people into work, which amounts to 50,000 job placements per year. They will reform disability benefits by abolishing the Work Capability Assessment, so that disabled people can seek work without fear of losing their benefits.
• Work MOTs: The Government will work with the Department of Work and Pensions to expand the number of mid-life work MOTs to 40,000 per year, helping older workers to gain control of their careers and finances.
• Care Leavers: The Government will invest £8.1m into the Staying Close Programme, which provides emotional and practical support to Care Leavers as they transition to independent adulthood.
• Devolution: As part of its wider Levelling Up agenda, the Government will devolve the majority of adult skills funding to local mayors and authorities, ensuring that regional leaders can set their own training and growth agendas for their communities.
• Ukrainian refugees: Since arriving via the Ukraine Visa Scheme, many Ukrainians are still struggling with English language and other core job skills, so the Government will be providing £11.5m to offer intensive English language support and skills training to up to 10,000 Ukrainian individuals.  
• Migration: To ensure that the UK labour market can still access highly-skilled migrants, the Government will be adding five construction occupations to its Shortage Occupation List, which sets out the high-priority visa categories for skilled workers.

Financial Services

• Regulation: Following the concerns around Silicon Valley Bank’s collapse last weekend, Hunt called for a “larger, more diverse finance system” in the UK. He confirmed that he would announce further reforms at the Autumn Statement including making the London Stock Exchange a more attractive place to list, unlocking productive investment from defined contribution pension funds and other sources and complete the response to the challenges created by the US Inflation Reduction Act.

 Infrastructure

• The Government is committed to delivering high quality infrastructure to boost growth across the country, including over £600 billion public sector gross investment over the next five years, split across economic and social infrastructure. The Government will publish an updated National Infrastructure and Construction Pipeline later in 2023, reflecting this commitment.
• Investment Zones: The Government has announced 12 new investment zones across the UK, including eight in England and at least one in Scotland, Wales and Northern Ireland.
• Each cluster will drive the growth of at least one of the UK’s key future sectors - green industries, digital technologies, life sciences, creative industries and advanced manufacturing - bringing investment into areas which have underperformed economically.
• Each English Investment Zone will have access to interventions worth £80 million, with access to a single 5 year tax offer matching that in Freeports, consisting of enhanced rates of Capital Allowance, Structures and Buildings Allowance, and relief from Stamp Duty Land Tax, up to 100% of Business Rates, and Employer National Insurance Contributions.
• The Investment Zones will reflect the principles of the Medici model set out in the Levelling Up White Paper, harnessing local sector strengths to drive productivity, and leveraging the bottom-up energy of local talent, knowledge and networks to deliver sustainable growth that benefits local communities.
• To access the funding, plans must credibly set out how local partners will use the levers available to propel growth in priority sectors, identify private sector match funding, and use the local planning system to support growth. Plans will be developed collaboratively by Mayoral Combined Authorities (MCAs) – working in partnership with local universities, councils and businesses – and central government.
• The following locations have been shortlisted in England. This shortlist will be kept under review with a view to adding other places to it where they have clear potential to host an Investment Zone in one of the five priority sectors.
• The proposed East Midlands Mayoral Combined County Authority
• The proposed North East Mayoral Combined Authority
• Greater Manchester Mayoral Combined Authority
• Liverpool City Region Mayoral Combined Authority
• South Yorkshire Mayoral Combined Authority
• Tees Valley Mayoral Combined Authority
• West Midlands Mayoral Combined Authority
• West Yorkshire Mayoral Combined Authority

• Levelling Up Partnerships: The Government has announced £400 million of investment to bespoke place-based regeneration in 20 of England’s areas most in need of levelling up over 2023 and 2024-25.A third round of the Levelling Up Fund will proceed as planned later in 2023 with a further £1 billion to level up places across the UK.
• Levelling Up Regeneration Projects: The Government has announced £211 million for 16 regeneration projects in England. These projects will commence delivery later this year. Investment has been targeted towards the left-behind places in the Levelling Up White Paper or projects that are under £10 million to ensure quick delivery and a good spread of funding across England. This includes £200 million for local authorities to repair potholes and improve roads.
• Levelling Up Capital Projects: £58 million will be invested in three levelling up capital projects in the North West of England. This will see a new community hub in Stockport, the transformation of Bootle town centre, and the redevelopment of markets as well as transport connectivity improvements in Rossendale.
• City and Metropolitan Regeneration Projects: The Government has provided a further £161 million for high-value capital regeneration projects in city regions across England, including business premises and food science facilities in Tees Valley, and unlocking investment in a research campus in the Liverpool City Region.
• City Region Sustainable Transport Settlement: The Government is committing £8.8 billion for a second round of the programme covering 2027-28 to 2031-32, with funding for Greater Manchester and the West Midlands to be included in their Single Settlements
• UK Infrastructure Bank: Now in its final stages in Parliament, the UK Infrastructure Bank Bill will give the UK Infrastructure Bank (UKIB) the powers to deliver on its mandate to accelerate investment into ambitious infrastructure projects which tackle climate change and support levelling up.
• Infrastructure Action Plan: The Government has published an Action Plan, supported by £15 million funding over 2023-24, setting out reforms to the Nationally Significant Infrastructure Project (NSIP) planning process.

• These reforms will deliver a more sustainable system, greater certainty for investors, and will ensure that projects of this scale put environmental and community benefits at the heart of delivery.
• As part of the Action Plan, the Government has now published a consultation on the National Networks National Policy Statement. A consultation on the updated Energy NPS and the final Water NPS will be published shortly.
• The Government has asked the National Infrastructure Commission (NIC) to carry out a study to look at the role of NPSs and make recommendations on how these documents can support reforms, including what action the Government can take to ensure NPSs are reviewed more regularly and how the process could be improved. The NIC will provide a final report in spring 2023.

Digital

• The Government has committed to delivering a regulatory environment that enables innovation and bolster’s the UK’s digital economy and has accepted all of the recommendations outlined in Patrick Vallance’s Pro-Innovation Regulation of Technologies Review. A supplementary document containing the Government’s response to the review can be found here.
• Digital Skills: The Government has announced a further £30.4 million via the Shared Outcomes Fund to fund 10 existing projects covering areas including data and digital.

Culture

• Tax Reliefs- film & TV: The Government has announced reforms to film, TV and video games tax reliefs. The new Audio-Visual Expenditure Credit will replace the current system of tax reliefs. Film and high-end TV will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%.
• Tax Reliefs – culture: The Government has announced an extension to theatre, orchestra, museums, and galleries tax relief. The temporary higher headline rates of relief for TTR, OTR and MGETR will be extended so that from 1 April 2023, the headline rates of relief will remain at 45% (for non-touring productions) and 50% (for touring productions). OTR rates will remain at 50%.

Energy & Environment

• Carbon Capture Usage and Storage: The Government has announced it has allocated £20bn to support the development of CCUS, which will support up to 50,000 jobs, particularly on the East Coast and in the North West of England and North Wales and attract private sector investment.
• Climate Change Agreement: The Government has confirmed the scheme is to be extended for a further two years, to support energy efficiency.
• Nuclear Energy: Subject to consultation, the Government has announced nuclear power will be classed as environmentally sustainable in order to give it access to the same investment and incentives as renewables.
• Great British Nuclear: The Government has announced a new body that will help address constraints in the nuclear market and support new nuclear builds as the Government works towards net zero. It will be tasked with ensuring that 25% of the UK’s electricity comes from nuclear by 2050, as set out in last year’s Energy Security Strategy.
• Small modular reactors: Great British Nuclear will launch a competition where both domestic and international vendors can put forward their technology as candidates to receive funding, to be completed by the end of this year. If demonstrated to be viable, the Government will confound this technology in the UK. Further large Gigawatt-scale projects will also be considered subject to value for money.
• Further action on energy security: The Government said it will set out further action later this month to ensure energy security in the UK and meet net-zero commitments.
• Plastic Packaging Tax: The Government will uprate the Plastic Packaging Tax rate in line with CPI, from 1 April 2023.

Health

• Mental health and musculoskeletal (MSK): The Government will embed tailored employment support within mental health and MSK services in England, including expanding the Individual Placement and Support (IPS) scheme, and scaling up MSK hubs in the community.
• Digital Mental Health: The Government will modernise and digitise mental health services in England, providing wellness and clinical grade apps free at the point of use, pilot cutting-edge digital therapies, and digitise the NHS Talking Therapies programme.
• WorkWell: The Government will pilot a new programme, WorkWell, to better integrate employment and health support for those with health conditions.
• Health and Disability White Paper: The Government is publishing a Health and Disability White Paper. This sets out reforms to make sure those with disabilities have the right support, opportunities, and incentives to move into and remain in work.
• Universal Support Programme: The Government will introduce a new programme to support people with disabilities and long-term sickness into work. A new Universal Support programme will match individuals in England and Wales who want to work with existing job vacancies, and ensure they are supported to enter and stay in work by funding the necessary training and workplace support.
• Health Pilot Subsidy Scheme: The Government will expand the forthcoming occupational health pilot subsidy scheme for small and medium sized businesses announced by the Department for Health and Social Care and DWP in 2021.
• Suicide Prevention Voluntary, Community and Social Enterprise (VCSE) Grant Fund: The Government will make £10 million available for a grant fund for suicide prevention VCSE organisations in England across 2023-24 to 2024- 25.
• VAT - services supervised by pharmacists: The Government will extend the VAT exemption on healthcare to include medical services carried out by staff directly supervised by registered pharmacists. This simplification will take effect from 1 May 2023..
• VAT - treatment of Patient Group Directions: The Government will extend the zero rate on prescriptions to medicines supplied through Patient Group Directions.
• Tobacco duties: Duty rates on all tobacco products will increase by RPI + 2%. The rate on hand-rolling tobacco will increase by RPI + 6% and the minimum excise tax will increase by RPI +3% this year. These changes will take effect from 6pm on 15 March 2023.
• Medicines and Healthcare products Regulatory Agency (MHRA) recognition framework: The Government is providing £10 million extra funding in 2023-24 to 2024-25 to the MHRA. From 2024, MHRA will have a fully operational swift approval process for the most impactful new medicines and technologies.

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