Spring Budget 2023 announced – what does it mean for me?
Jeremy Hunt has announced his first Spring Budget as Chancellor. We’ve broken down exactly what was announced and what implications this could have for you.
Energy price guarantee extended for three months
The Chancellor confirmed that the energy price guarantee will be extended at its current level for an additional three months, from April to June.
This means bills for the average household will remain around £2,500, instead of going up to £3,000 as was previously announced.
Hunt also said that charges for prepayment customers, who currently pay more comparably to those paying via direct debit, will have their charges brought in line with direct debit charges.
Mohsin Rashid, CEO of ZIPZERO, comments, “As expected, indeed as required, the Chancellor has extended the energy price guarantee, which will be welcomed by households across the country. Although portraying this measure as pulling a rabbit out of a hat and virtue of outperforming the OBR’s expectations for the economy, the reality is that households are struggling too much for the government to cut support now. This isn’t a life jacket; this is the same rope tossed back while the Chancellor shouts “Hold on tight”. Unfortunately, many are slipping off.
“With disposable incomes under enormous strain due to inflation, households need support that goes further than what is already in place. Meanwhile, there was very little on offer for businesses struggling with rising overheads and depressed consumer spending power.”
“Fortunately, there are tech solutions that serve both camps. Direct-to-consumer marketing platforms such as ZIPZERO allow consumers to earn cash toward their utility bills from everyday purchases while giving retailers a way to advertise directly to target markets. With support lacking from central government, both businesses and households must adopt mutually beneficial solutions that strengthen their purse strings.”
However, the Energy Bill Relief Scheme, which is set to end in April, was not extended.
Joseph Calnan, manager of corporate FX Dealing at Moneycorp, comments on the implications of this development. He says, “The Treasury’s failure to extend the Energy Bill Relief Scheme (EBRS) is a disappointing turn of events for SMEs. We already knew from the FSB that over 350,000 SMEs stood to downsize, restructure or close entirely if their energy bills reverted to the higher rates in April. But hot on the tails of a fresh wave of uncertainty from the SVB collapse, which has rattled the foundations of the UK’s SME ecosystem, this blow is going to be felt even more keenly.
“Factor in the accompanying rise in corporation tax and today’s budget becomes more disappointing still. Business insolvencies are already reaching levels not seen since the 2008 financial crisis and this could get worse if current conditions prevail. We saw from the swift intervention over the weekend that the Treasury is willing and capable of protecting UK plc, but today it appears to have regressed in that regard.”
Draught relief to be increased from August
From August 1st, the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets. The Chancellor said this change will also apply to all pubs in Northern Ireland due to the Windsor Framework.
Gerry Myton, Head of Indirect Tax at HW Fisher, comments, “In a boost for the pub sector after three incredibly tough years, the Chancellor has announced a freeze in the duty rate applicable to draught beer from 1 August 2023. This will mean that the duty rate on draught products in pubs will be about 11p lower than the applicable rate for a draught product in a supermarket. Hopefully, the trade in all parts of the UK will pass this saving to the customer!”
However, Louise Gilmour, GMB Scotland Secretary, says this is an unhelpful political measure for Scotland’s whisky and spirits sector, following hard on the back of Holyrood proposals for an alcohol advertising ban.
She continues, “GMB’s concern is that workers mired in the cost-of-living crisis will see their pay, conditions, and ultimately investment in their workplaces, curtailed by employers seeking to clawback costs as a consequence of short-term political policy.
“Let’s also be clear, workers are facing tough international competition and they are still dealing with the damaging legacy of Trump’s whisky tariffs while Truss and Johnson were sleeping at the wheel – this latest tax increase risks leaving them even further behind.
“Whisky and spirits production is the jewel in the crown of Scotland’s world-class food and drinks sector, but the political bubble looks out of touch about its importance not just to the country, but to the workers, communities, and supply chains that depend on its future growth.”
Fuel duty will not rise in line with inflation
The 5p per litre cut on fuel that was introduced last year is set to continue for another 12 months and fuel duty will be frozen. According to the Chancellor, this will save the average driver around £100 next year.
£11bn to be added to the defence budget in the next five years
In the Spring Budget, Chancellor Jeremy Hunt said the government would increase the defence budget by £11bn over the next five years. By 2025, this means the defence budget will account for nearly 2.25% of the UK’s GDP. Hunt also said they will raise that to 2.5% when fiscal and economic circumstances allow.
The UK will not enter a recession this year
Significantly, the Chancellor claimed that the Office for Budget Responsibility forecasted today that the UK will not enter a technical recession this year. This goes against previous forecasts made by the IMF, which said the UK would shrink 0.6% in 2023.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, comments on this announcement, “Jeremy Hunt wasted no chances in pulling the biggest rabbit from his hat, brandishing the forecast from the Office for Budget Responsibility that the UK will swerve a recession this year.
“Things were already looking up, with consumer and business confidence rising, and spending proving much more resilient. The rebound in the huge services sector in February had already raised hopes that two back-to-back quarters of negative growth will be avoided and now that more pieces of the jigsaw are now in place, a rosier picture is emerging.
“But given that the cost-of-living crisis is still proving painful, economic activity is still likely to be slow to power up and a period of stagflation, not super-charged growth, is still expected. The Chancellor is gearing up to deliver fresh incentives to loosen a tight labour market, spark greater productivity and bring in foreign investment but it’s going to still be a hard slog ahead.”
Corporation tax rise from 19% to 25% to go ahead
The rise in corporation tax was first promised by Rishi Sunak in his 2021 Spring Budget. Although it was scrapped during Kwasi Kwarteng’s mini-budget, it was later reinstated by Hunt in his Autumn Budget. Set to come into effect from the 1st of April 2023, it will see corporation tax rise from 19% to 25%.
Speaking during today’s Spring Budget, chancellor Jeremy Hunt said, “We already have lower levels of business taxation than France, Germany, Italy or Japan. But I want us to have the most pro-business, pro-enterprise tax regime anywhere. Even after the corporation tax rise this April, we will have the lowest headline rate in the G7 – lower than at any period under the last Labour government.
“Only 10% of companies will pay the full 25% rate. But even at 19% our corporation tax regime did not incentivise investment as effectively as countries with higher headline rates.”
Serial entrepreneur Sylvester Lewis, founder of high-growth businesses including Coachcube, comments on the announcement, “As we emerge from the pandemic policies that have wreaked havoc on the UK economy, it is more important than ever to foster an environment that encourages economic growth and innovation. Raising the corporation tax rate from 19% to 25% will achieve the exact opposite.
“In my own business, an education technology platform providing mentoring services to young people, we have had to adjust our forecast headcount down as there will be less money to make new hires in the coming years owing to the tax increase. This is a pattern that will be repeated with many start-ups and small businesses across the country, ultimately leading to fewer jobs and slower growth.
“Several peer-reviewed studies show that tax increases harm economic growth by reducing the incentive for companies to invest and build capital. Furthermore, the move to increase corporation tax will disproportionality affect start-ups and small businesses that do not have the luxury of employing teams of accountants and lawyers to create elaborate tax optimisation schemes to lower their tax liability.
“It is important that the UK can remain competitive by attracting and retaining innovative companies and a talented workforce. Raising the corporate tax rate will make the UK rate one of the highest of the large, developed countries topped only by Canada and Japan.”
Dominic Ashley-Timms CEO of Notion and co-creator of STAR® Manager, also commented, “Lower corporation taxes would give businesses the capacity to invest more in technology, research and development, employ more people and invest in their learning and development. The combination of this could result in faster growth for every employee, the businesses and UK plc as a whole.
“If we had access to more revenue as a result of lower corporation tax, we would be investing in growing our business faster in these ways.
“We already have lower levels of business taxation than France, Germany, Italy or Japan. But I want us to have the most pro-business, pro-enterprise tax regime anywhere. Even after the corporation tax rise this April, we will have the lowest headline rate in the G7 – lower than at any period under the last Labour government.
“Only 10% of companies will pay the full 25% rate. But even at 19% our corporation tax regime did not incentivise investment as effectively as countries with higher headline rates.”
Nuclear power to be classed as “environmentally sustainable”
In order to drive investment in the energy sector, Jeremy Hunt said nuclear power would be classed as “environmentally sustainable”. He also said he would launch “Great British Nuclear” to bring down costs.
Reacting to the Chancellor’s green economy strategy, Alisa DiCaprio, chief economist at R3 and former Chair of the FinTech Committee at the US Department of Commerce, comments, “The government’s green agenda and the recent creation of the Department for Energy and Net Zero are positive steps in ensuring the UK remains a leader in decarbonisation. However, we must make sure the right processes across all industries are in place to make this transition credible.
“Distributed ledger technology (DLT), already acknowledged as a critical piece of tech by the UK government, is in fact one of the most promising tools that can help move the needle on green transition. DLT can enhance all corporate ESG credibility in several ways – such as improving inefficiencies in the carbon market and strengthening governance through heightened transparency – so this is a golden opportunity to use this technology as a force for good on climate action.”
AI sandbox to support UK artificial intelligence
The Chancellor announced an “AI sandbox” to boost support for the UK’s artificial intelligence companies. Furthermore, a quantum strategy with a research and innovation programme worth £2.5bn was also unveiled.
Reacting to the Chancellor’s budget and plans to support innovation spending for SMEs, Laurent Descout, CEO and co-founder of Neo says, “The UK is a key fintech hub and maintaining that strong position should be a key priority for the government. In recent weeks, we have seen positive moves such as the Prime Minister and Technology Secretary’s commitment to enhancing the UK’s position as a science and technology superpower by 2030 through its new framework which commits hundreds of millions worth of investment in innovation.
“This, coupled with the Chancellor’s additional R&D support for SMEs spending large amounts on innovation and commitment to additional investments to tech hubs near UK universities is great news for the tech industry. From 2021 to 2022, Spin-outs from UK universities created more than 56,000 jobs and almost £6bn of investment and this investment will help ensure this success continues. As a fintech with an office in Cambridge, we have seen first-hand the innovation taking place at UK universities and welcome the Chancellor’s support.”
Lifetime allowance on pensions to be abolished
As part of the government’s plan to incentivise older people back into work, the Chancellor announced plans to abolish the lifetime allowance limit on pensions.
David Hilton, client relationship manager for pensions at Employment Hero, comments on why the government is doing this. He says, “The Government shrunk the lifetime and annual pension allowance long before inflation really began to bite. It makes sense to reconsider those limits now, as there is ample evidence that the limits were encouraging some older professionals into early retirement – in particular experienced NHS doctors, which is a real worry.
“As wages increase, keeping the settings frozen would amount to a stealth tax increase. That said, it will be quite wealthy people who directly benefit from this change. Accountants and reward teams have long been hit with enquiries about this quite obscure tax trap. They should take this opportunity to explain the changes to their workforces as soon as possible – it could keep someone who was thinking of retiring from leaving.”
Annual Investment Allowance increased to £1 million
The Chancellor announced that the Annual Investment Allowance for small businesses will be increased to £1m, which he said would mean 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits.
