Spring Budget 2023: The State of the Economy 

The Office for Budget Responsibility (OBR) is now forecasting that the UK will not, technically, enter recession this year.  It will still feel like it though, as the economy is forecasted to contract by 0.2% over the year.  On the plus side, inflation is forecast to fall to 2.9% by the end of 2023.  Unemployment should remain muted, whilst changes announced in the Budget are expected to have a “material” impact on labour supply.

Public sector debt is expected to peak at 100.6% of GDP in the current tax year, but is expected to fall in each of the next five years, to 94.6%.  The OBR is forecasting that the Budget will be in surplus from 2027/2028 by which time the government will only need to borrow for investment.

One of the most significant announcements in the Budget covered the changes to pension rules – detailed in our previous blog

Budget Highlights 

• The Chancellor confirmed the earlier announcement that the energy price guarantee would remain at £2,500 for the average household until July, when the increase to £3,000 will be implemented.  It is widely expected that household energy costs will be below £2,500 a year by then without any government intervention.  Additional funds are being set aside to help public leisure centres and swimming pools with their energy bills.

• Significant changes are being made to childcare, in a bid to increase provision of childcare, and to enable more parents of young children to return to the workplace.  On the supply side, the government is piloting incentive payments of £600 to those becoming childminders, and changing minimum staff ratios for two year olds from 1:4 to 1:5.  £204 million is being made available to uplift hourly funding rates paid to providers who deliver the existing free hours offers.

• The headline announcement for childcare was that where both members of a household are working at least 16 hrs/week, the government would provide 30 hours of free childcare for every child over the age of nine months.  This is being introduced in stages, to ensure there is enough supply in the market (presumably, also, so it isn’t as expensive before the General Election).  Nothing changes until April 2024, when working parents of two years olds can have up to 15 hours of free childcare per week.

• A number of other changes are being made to encourage, or make it easier for, parents with young children, the disabled and the over 50s, to return to work.  Immigration rules are being relaxed for five roles in the construction sector where there are particular labour shortages.
• Corporation tax will still be increasing to 25% in April as previously announced.  Companies with profits between £500,000 and £1 million will pay between 19% and 25%.  However, the pill is being sweetened by significant changes to investment allowances.  The annual investment allowance for small businesses is being increased to £1 million, enabling an estimated 99% of all businesses to deduct the full value of their investments from the year’s taxable profits.
• Enhanced R&D credits will be available for small and medium sized loss-making companies that spend at least 40% on research and development, reliefs will be enhanced for audio visual industries and retained at the higher level for theatres, orchestras, museums and galleries.

• Up to £20 billion will be provided to support carbon capture, usage and storage (CCUS), estimated ultimately to create up to 50,000 jobs.  Subject to consultation, nuclear energy is to be designated environmentally sustainable, allowing it to attract reliefs and funding available to renewables.  Great British Nuclear is to be formed with a view to providing a quarter of our energy needs.  Its initial focus will be on Small Modular reactors, and a competition will be held to attract the best designs.  If the leading technologies are shown to be viable, the government will co-fund their development.

If you would like to discuss how the Spring Budget may have affected your financial situation, please speak to a member of our financial planning team on 01223 233331, or email info@mmwealth.co.uk

Disclaimer 
Opinions constitute our judgment as of this date and are subject to change without warning.  The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.

The Financial Conduct Authority do not regulate tax planning.

The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.