On 15 March 2023 Chancellor Jeremy Hunt released the Spring Budget, his second fiscal statement - this time largely influenced by moving the UK economy into a stage of growth through business investments and increasing the workforce.
While all seemed quite straight forward leading up to the 2023 Spring Budget, the UK was caught off guard with the fall of U.S. lender Silicon Valley Bank (SVB) - the biggest bank collapse in the U.S. since the 2008 financial crisis just days before the Chancellor's announcements.
With the Prime Minister pledging to help limit the consequences for companies affected, Jeremy Hunt's acknowledgement that the bank's collapse would have a significant impact on British tech companies and over 250 UK tech firm executives asking for government intervention we were left wondering how this would affect the Budget, if at all?
Although mentioned in his statement, the Chancellor only briefly addressed the fall of SVB as an accomplishment for the government and HSBC who acquired the UK branch of the bank at no additional expense to the public - instead Mr Hunt's headline for this Spring Budget was "the UK will avoid a recession in 2023".
It was speculated early on that tax cuts would not be a part of the Spring Budget, so there was no surprise that the announcement lacked 'giveaways' to the public yesterday. It did however echo Rishi Sunak's January statement that the priorities for 2023 would include halving inflation (already in progress according to the Bank of England's forecast), reducing the UK's national debt and growing the economy through better-paid jobs…although the discussion of pay didn't seem to come up.
What is the Spring Budget?
The Spring Budget is a fiscal statement made by the Chancellor of the Exchequer summarising the state of the UK economy and the government's taxation and spending plans for the financial year ahead.
What did the Chancellor announce during the 2023 Spring Budget?
The 2023 Spring Budget demonstrated the government's long-term ambition for the UK to have "the most competitive tax regime of any major country" alongside Mr Hunt's plans to keep the economy prosperous and growing using his four 'E' pillars: Enterprise, Education, Employment and Everywhere.
The key takeaways from the Chancellor's announcements included:
Energy Price Guarantee Extended
The energy price cap was announced in the 2022 Spring Statement and it was scheduled to end in April 2023 with the average household bill due to rise to £3,000. The Chancellor announced that the level of support provided by the Energy Price Guarantee (EPG) will be maintained at £2,500 per year for a further three months until the end of June 2023.
Fuel Duty Frozen
To help with the surge in fuel prices which reached an average of 155.3p and 179.1p per litre at the end of last year according to the Office of National Statistics (ONS), the scheduled 11p a litre duty increases on petrol and diesel will not go ahead and the 5p cut to fuel duty originally announced last spring has been extended for a further 12 months until March 2024.
Pension Allowances and Limits
Jeremy Hunt unveiled changes to pension allowances and limits in a bid to get over-50s back into the workforce. It was announced that the annual tax free allowance will increase from £40,000 to £60,000 at the start 2023/2024 tax year and the money purchase annual allowance (MPAA) will also rise from £4,000 to £10,000.
The Chancellor also confirmed that the lifetime allowance (LTA) will be scrapped starting with the removal of the charge which will be reduced to nil from 6 April 2023, followed by a complete withdrawal from pensions tax legislation at a future date.
The annual allowance increase and abolished LTA means that individuals will be able to contribute more to their pension savings before being taxed.
It was also announced that a new monetary limit for the tax-free pension commencement lump sum (PCLS) will be introduced for 2023/24 of £268,275 (equivalent to 25% of the current standard LTA).
Free Childcare Expanded
The average weekly nursery fees increased by 20% over the last six years and an estimated 10% of the UK workforce has said that they will be reducing their working hours to mitigate the continued rise in childcare costs.
In an effort to make childcare more affordable, and to get more people back to work, the Chancellor announced an expansion in the number of hours of free childcare entitlement to 30 hours a week for children aged between 9 months and 5 years old.
Mr Hunt said as this is such a large reform it will be managed in the following staged approach:
- Working parents of two-year-olds will be able to access 15 hours of free care from April 2024
- From September 2024, that 15 hours will be extended to all children from 9 months up
- From September 2025 every single working parent of under 5s will have access to 30 hours free childcare per week
Full Expensing for Businesses
The corporation tax increase from 19% to 25% from April 2023 was confirmed by the Chancellor in his Spring Budget. Understanding that this alongside the end of the super-deduction on 31 March 2023 would be a double hit for businesses and investment Mr Hunt introduced a new capital allowance initiative.
From April 2023 until the end of March 2026, businesses will be entitled to claim a 100% first-year allowance on eligible plant and machinery investments. Although a qualifying period has been set for three years, the government has expressed intentions to make this permanent.
The Chancellor also stated that from 1 April 2023, SMEs that spend 40% or more of their total expenditure on R&D can claim a tax credit worth £27 for every £100 they spend.
Duty on Pub Pints Frozen
While alcohol duty will rise with inflation, duty on draught products in pubs will be frozen and up to 11p lower than in supermarkets - these changes will take place from August 2023.
With the U-turns that accompanied Kwasi's mini-budget and Jeremy Hunt's subsequent 'clean-up' statements - even with the unexpected collapse of SVB, yesterday's Spring Budget felt relatively uneventful in comparison.
While the Office for Budget Responsibility (OBR) reports that inflation will fall from 10.7% to 2.9% at the end of 2023 the question still remains if the Chancellor's Spring Budget was ambitious enough to encourage long-term economical growth across the UK.
How can DSA Prospect help?
As always, more news on these announcements will continue to develop and this is a merely a guide to some of the main points initially discussed.
We recommend seeking further consultation on any questions you may have regarding the 2023 Spring Budget and encourage you to get in touch with our team.
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