Spring Statement 2023

Back to the Future

Following the “Growth Plan” mini budget delivered by Kwasi Kwarteng on 23 September 2022, Jeremy Hunt took centre stage for the second time on 15 March 2023 to deliver a…”Budget for Growth”.

Fiscal policy can be assessed in three measures: efficiency, effectiveness and equity and whilst the announcements were fairly safe, a handful are poorly timed or likely to be ineffective:

  • During an interview with BBC Radio 4 when defending the scrapping of the £1.073m tax-free cap on the lifetime pension allowance, Jeremy Hunt remarked that “we do know that we have a shortage of doctors and we know we have a very big backlog, and that is why we’ve decided this [scrapping of the lifetime pension allowance] is a very important measure to get the NHS working”. Said whilst junior doctors are on prolonged strike over pay and conditions; we suspect that Mr Hunt may have skipped his situational judgement module at Oxford!
  • The Spring Budget is designed to “…break down barriers to work, unshackle business investment and tackle labour shortages head on”. Whilst the headline measure of 30 hours of weekly free childcare is a great and targeted initiative, Mr Hunt is making some parents wait up to 2 years and 5 months for the benefit.

As regards equity, the Budget is fairly safe and business-focused, but it does not appeal particularly to small and medium-sized enterprises (SMEs) who now face a rise in corporation tax and who are unlikely to benefit from the full expensing capital allowances policy. In addition the chancellor has failed to take any action to make it easier for small firms to recruit people locked out of the labour market.

In other news regarding:

  • Childcare: Extension of 30 hours of weekly free childcare to cover nine-month to two-year-olds for working parents, to be fully phased in by September 2025.
  • Taxes: Increase in corporation tax from 19% to 25%.
  • Capital allowances: A “full expensing capital allowances policy” under which companies can write off qualifying expenditures against taxable profits.
  • Research & Development: From 1 April 2023:
    SMEs will received an increased rate of R&D relief from HMRC: £27 for every £100 of R&D investment if they spend 40% or more of their total expenditure on R&D.
    the rate of the Research & Development Expenditure Credit (RDEC) is increased from 13% to 20%.
  • Energy: The government will keep the £2,500 annual cap on household energy bills in place for a further three months until June. Fuel duty has also been frozen for another year.
  • Local growth: Tax incentives and other benefits for 12 investment zones across UK cities and towns worth £80m each over five years.
  • Pensions:
    • The annual tax-free pension allowance will be increased from £40,000 to £60,000.
    • The Lifetime Allowance – previously set at £1.07m – will be abolished. The 25 per cent tax-free lump sump will though remain pegged to the current lifetime allowance, rather than 25 per cent of your whole pot.
    • The money purchase annual allowance (MPAA) currently capped at £4,000 or £3,600 per tax year, has been increased to £10,000.
  • Energy: Investment of £20bn over the next 20 years in carbon capture and storage projects.
  • Pubs: A pint will become 11p cheaper but a glass of wine will cost 45p more from August.

Visit our Budget Highlights and tax data for a summary of the Spring Statement 2023.

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