Budget 2023 Summary
After setting out his economic approach in the Autumn Statement, Jeremy Hunt opened the first full UK budget of 2023 (and his first as chancellor of the exchequer) by proudly declaring that the economy had “proven the doubters wrong” with improved growth forecasts.
“The IMF says our approach means the UK economy is on the right track, but we remain vigilant and will not hesitate to take whatever steps are necessary for economic stability.” So, what steps is he talking about exactly and how will they impact small businesses over the coming years?
The economic outlook
“The World Bank said of all big European countries, the UK is the best place to do business”. This is how Mr Hunt set the scene for his financial plans for the economy.
We are now expected to avoid a recession (two consecutive quarters of contracting GDP), as the UK is expected to remain flat in Q2 and return to growth in the second half of the year, although the economy is still expected to shrink by 0.2% across 2023.
Alongside the lack of a technical recession, inflation is now expected to fall from 10.7% in the final quarter of 2022 to 2.9% by the end of 2023.
How will the Spring Budget affect small businesses?
Small businesses in the UK are an essential part of the economy, accounting for around 99% of all businesses and employing approximately 60% of the workforce in the private sector. The spring budget is going to have a significant impact on those businesses, whatever the weather.
Energy and Fuel
The energy price guarantee for consumers will remain at £2,500 for the next 3 months. However, support will not be extended for businesses in the same way and the energy price cap for businesses will increase as previously announced.
Fuel duty will be frozen, helping those with high travel needs.
One of the many things business owners were hoping for was that the proposed increase in corporation tax wouldn’t go ahead, but that wasn’t to be the case, and Corporation tax will increase from 19% to 25% in April.
Annual investment allowance
More encouraging was the announcement that the annual investment allowance for smaller businesses will increase to £1 million.
Mr Hunt claims this will mean 99% of all businesses will be in a position to deduct the full value of all investments from the year’s taxable profits.
The introduction of a new policy of full capital expensing for the next three years also means that every pound invested in IT equipment can be deducted in full and immediately from taxable profits. This is a tax cut worth around £9 billion per year and the OBR predicts it will increase business investment by 3% for every year it’s in place.
The big gains will be felt in businesses with a heavy focus on R&D, given the chancellor’s “enhanced credit” scheme, which will allow businesses spending at least 40% of their expenditure on R&D to claim £27 credit on every £100 spent.
Mr Hunt also made several bold proclamations about how he was going to save British pubs and hospitality businesses by freezing the duty on beer.
£63 million will also be provided to fund public leisure centres and swimming pools.
UK businesses will also benefit from new investment zones scheme, which will see eight locations across the UK given funding of £80 million to use for “skills, infrastructure, tax reliefs and business retention rates.”
The idea is to create a series of hubs where businesses can work and thrive alongside each other. For businesses based outside of London, this should prove quite encouraging.
How will the Spring Budget 2023 affect the labour market?
Perhaps the most significant changes mentioned in the budget came down to measures being put in place to boost employment and soften the burden on parents of young children.
For starters, 30 hours of free childcare are being offered every week to parents of small children over nine months old from September 2025, with phased childcare being offered in the two years leading up to that date.
For years, the rising costs of childcare have been seen as a major deterrent for some parents to return to work so this will be a welcome announcement for thousands. Childminders will also get incentive payments for joining the sector, and for those on universal credit, the cap on childcare support is increasing to £951 for one child and £1630 a month for two or more children.
Pensions and Over 50s
On the other end of the spectrum, tax on pensions saw some major changes, with the lifetime allowance being abolished and the annual pensions tax-free allowance increasing from £40,000 to £60,000. This means older workers can put more money in their pension pots before they start paying tax on them.
More free training is also being offered to over 50s to keep us all working longer and retiring later, which, while controversial, should delight businesses that rely on more experienced staff. How effective these “skills bootcamps” will be remains to be seen but there will be at least 8,000 of them created across England by 2025.