The Chancellor of the Exchequer stated that his budget, which has been labelled ‘a budget for growth’, will work towards the prime minister’s main priorities to halve inflation, reduce debt, and grow the economy.
While his November budget, Hunt said, sought to ensure stability, this budget will “seek to deliver growth through increasing business incentives and ensuring an increased labour supply”.
But what did he say?
The Office for Budget Responsibility (OBR) projects that the UK will not enter a technical recession in 2023. The economy will contract by 0.2% in 2023, before returning to growth of 1.8% in 2024. By the end of 2023, inflation will be 2.9%, more than half the current rate of 10.1%.
Here are the Spring Budget headlines:
- The Energy Price Guarantee will remain at its current level of £2,500 for the typical household until the end of June.
- While the UK is a “world leader” in offshore wind, further investment is needed in domestic energy production that will not be affected by international factors. Nuclear power will be reclassified as ‘environmentally sustainable’ and there will be up to £20billion of support for carbon capture and storage which will help support up to 50,000 jobs, attract private investment and help capture up to 30 million tonnes of CO2 per annum by 2030.
- £200million in local regeneration projects around England, with a further £161million for “high-value capital regeneration projects” in city regions.
- 12 new Investment Zones across the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool, with at least one investment zone in each of Scotland, Wales and Northern Ireland. Investment Zones will benefit from tax breaks and £80million of funding each over the next five years.
- West Midlands Combined Authority and Greater Manchester Combined Authority will have more control over their budget from April 2024, with the plan to then offer this to all combined authorities across the country.
Business & Investment
- The rate of corporation tax will increase from 19% to 25% in April 2023, with only 10% of companies set to pay the full 25%.
- With the aim of increasing research and development in the UK, companies that invest in new machinery and technology will be able to deduct this investment to lower their taxable profits.
- A number of childcare reforms were announced to support parents to get back into work.
- The 30 hours of free childcare will ultimately be expanded to children over nine months for households with two working parents.
- Schools and local authorities will also increase the supply of wraparound childcare allowing parents to drop children off between 8am and 6pm to align with working hours. It is the ambition that all schools will offer this by September 2026.
Our initial reaction
On the economy
The OBR’s optimistic forecast that the UK will not enter recession in 2023 and inflation will more than halve by the end of the year is welcome news.
But in light of this more positive outlook, the government must go further with its investments in areas such as housing, education, transport, and energy and address the productivity gap across the whole country to ensure sustainable economic growth.
Sarah Hamilton-Foyn, Executive Director based in our Cirencester office, says:
“While it is encouraging that we aren’t in recession, the OBR’s forecasts indicate that the economy remains in a fragile position while journeying towards growth beyond 2023. The Chancellor’s Budget proposes a wide range of measures to support growth including establishing investment zones and transferring responsibilities for economic growth to local authorities. However, given the state of our economy, it is absolutely vital that the Government follows through on those promises and invests in housing, transport, education, etc. across the whole country. This is essential if we are to address the long-term productivity problems that are holding back our economic growth, including constraints such as the slow pace of housing delivery. Until these problems are addressed, it is difficult to see how the situation will improve.”
On the regions
Levelling up featured heavily in today’s budget, with numerous different funding pots announced under the ‘levelling up banner’ and the announcement that 12 Investment Zones will be created to boost ‘high-potential knowledge-intensive’ growth clusters.
The big question is are these funds simply more hand outs from Whitehall or will real devolution – power – come with it?
Here’s Sebastian Tibenham, our Deputy CEO:
“It’s hugely encouraging to hear that both the West Midlands and Greater Manchester combined authorities will shortly be given greater autonomy over budget decisions for housing, transport and education. If these test cases prove to be successful, hopefully other city regions are able to agree similar deals with government, something the Government stated is an intention for all mayoral authorities over time. The announcement of the low-tax investment zones is also a positive move in terms of supporting the levelling up of areas outside London.
“Without doubt, decision makers at a local level have a far better understanding of the issues impacting local communities and how best to invest public money effectively. Key to addressing Britain’s productivity problem, and delivering on the levelling up agenda, will be investing in essential infrastructure like improving the rail connections between Liverpool, Manchester and Leeds and my hope is that local policy and decision-makers grasp the opportunity to promote ambitious and positive plans to secure new jobs, homes and supporting social infrastructure in order to take advantage of the strengths of each region.”
Overall, we are supportive of the majority of the commitments made in today’s budget and it offers opportunities to kick start growth once again. However, the timeframes suggested in respect of greater devolution of powers to regions, as well as cases to be made before winning the funding available in each of the new investment zones are not immediate. Furthermore, it was notable that there was no reference made to major energy or transport infrastructure projects, or building of new homes, which had been highlighted as points of focus for the government in last September’s Mini Budget. Overall, the government must go further with its commitments to ensure growth beyond 2023; acceleration of access to investment and planning system reforms as far as practicably possible are key to unlocking this future growth.
This article was written by Sebastian Tibenham and Sarah Hamilton-Foyn, for more information about this article, please contact us.