Hunt unveils a ‘budget for growth’

By Ged Henderson

15 Mar 2023

Jeremy Hunt

Chancellor Jeremy Hunt today delivered what he called a ‘budget for growth’ with a series of measures aimed at improving productivity and innovation.

They included a range of incentives looking to encourage businesses to invest and grow and moves to get more people back into work.

He declared his budget would achieve growth by “removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”

Mr Hunt went on to announce a policy of “full expensing” for businesses for the next three years and with an intention to make it permanent.

He told the Commons: “That means that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits. It is a corporation tax cut worth an average of £9bn a year for every year it is in place.”

For smaller businesses, the Annual Investment Allowance is being increased to £1m, meaning 99 per cent of all businesses will be able to deduct the full value of all their investment from that year’s taxable profits.

There will be additional tax support to help research and development intensive SMEs. For every £100 spent on R&D, eligible companies will be able to claim £27 back, helping them to invest in more R&D.

Mr Hunt also announced that fuel duty will be frozen and a 5p reduction will be maintained for a further year.

He also unveiled a raft of measures aimed at increasing the UK’s workforce. They include what he described as the “biggest change to our welfare system in a decade”, with reforms aimed at supporting more disabled people into work.

He announced plans to increase the pensions’ annual tax-free allowance from £40,000 to £60,000 along with abolishing the Lifetime Allowance - previously set at £1.07m.

Mr Hunt said that the move would incentivise “our most experienced and productive workers to stay in work for longer”.

Focusing on the over-50s, he said he would increase the number of people who get “mid-life MOTs” from the Department for Work and Pensions, helping them assess their financial situation.

A new apprenticeship scheme, called “returnerships”, will be introduced for over-50s wanting to return to work in a new sector.

He went on to unveil reforms in childcare aimed at helping parents get back into work. These include an increase in funding for nurseries.

Mr Hunt also announced 30 hours of free weekly childcare is being extended to cover children below the age of three – as long as both parents are working at least 16 hours a week. It will eventually cover all children from the age of nine months.

The chancellor said: “We have one of the most expensive systems in the world. Almost half of non-working mothers said they would prefer to work if they could arrange suitable childcare.

“For many women, a career break becomes a career end. Our female participation rate is higher than average for OECD economies, but we trail top performers like Denmark and the Netherlands.

“If we matched Dutch levels of participation, there would be more than one million more women who want to work, in the labour force. And we can.”

The government will also fund schools and local authorities to increase supply of wraparound care so all parents of school-age children can drop their children off between 8am and 6pm.

Mr Hunt also announced 12 investment zones, which he said can be new ‘Canary Wharfs’. Areas chosen include Greater Manchester and Liverpool.

In other initiatives £400m will be available for new “levelling up partnerships” in areas including Blackburn.

The rate of price rises, or inflation, is forecast to fall to 2.9 per cent by the end of 2023, according to the Office for Budget Responsibility (OBR).

Mr Hunt told the Commons the government was on track to halve inflation, get debt falling, and grow the economy.

And he told the Commons that the OBR is now forecasting there will be no technical recession, adding: “We are following the plan and the plan is working.”

The chancellor also confirmed that the energy price guarantee will remain at £2,500 until July.

The government will also add a total of £11bn to the defence budget over the next five years and it will be nearly 2.25 per cent of GDP by 2025.

To encourage investment, nuclear power will be classed as “environmentally sustainable”, subject to consultation. That move will give it access to the same investment incentives as renewable energy.

The chancellor will also allocate up to £20bn for the early development of carbon capture and storage.

Jane Parry, managing partner at PM+M, said: "The government is facing some tough challenges, but this Budget has only gone a small way to really addressing them. The government is treading a fine line between a ‘technical recession’ and minimal growth so anything that would have caused even the tiniest of negative shockwaves was never going to happen – especially as the economy is still recovering from last year’s ‘Trussonomics’ debacle.

"The annual allowance, which is the most a worker can save in their pension pots in a single year is set to rise from £40,000 to £60,000. This will, of course, only affect the wealthiest and will have no impact on ordinary workers. I can see his logic, but I do think more will need to be done for lower and middle earners over the next few years. Especially as the freeze to personal allowances is pushing more and more people into higher-rate tax bands.

"The reform of disability benefits is very welcome. I also believe a plan should be put in place to directly tackle the current benefits trap which sees something like a 98 per cent effective tax rate on some universal credit claimants where their income increases, and their universal credit and housing benefits get clawed back. That’s a massive disincentive for working longer or harder which really needs changing if we want to see some productivity shifts in the UK workforce. We’ve also got some crippling student loan interest rates affecting young people (some of them are at 9 per cent) which generate seemingly endless repayment profiles and can act as a disincentive for increasing earnings for some.

"For larger businesses, the surprise announcement that full expensing for capital investment in technology, plant and equipment will come in from 1 April was welcome. For smaller businesses whose capital expenditure falls within the current £1m annual investment allowance, this will be irrelevant. There was an interesting spin on the announcement of “additional” tax support to help loss making research & development intensive SMEs, meaning that for every £100 spent on R&D, those eligible companies will be able to claim £27 back. This sounds great, but in the context of the wholesale reform of the R&D scheme which is happening in the background with the considerable dilution of the currently very generous SME scheme, it isn’t that great. Currently all such loss-making SME companies could claim £33 cash back for that expenditure. Going forward, other companies who don’t meet the R&D intensive criteria will only be able to claim back £18.60 under the new regime.

"It feels like the chancellor has missed the opportunity to really revitalise the R&D Tax credits regime into more of a real time system which incentivises and facilitates world class R&D by UK businesses. Instead, we’ve got a watered-down version of the old regime, with less benefits to the cutting edge SME’s which are driving innovation in our region.

"It’s also a shame the chancellor didn’t reconsider his decision last year to more than halve the capital gains annual exemption which takes effect on 6 April. It’s a measure which will affect a swathe of smaller investors, many of them pensioners, and will drag many back into needing to incur the costs of submitting personal tax returns, for very little overall benefit to the exchequer."

Shevaun Haviland, director general of the British Chambers of Commerce, said: "The Chancellor has acted to address the unfilled jobs blighting our economy. It is especially good to see the help on childcare and for over 50s workers. The plans for full capital expensing are also a step in a right direction to offset the rise in corporation tax, but the jury is out on how much it will help businesses compared to the Super Deduction scheme.

"Almost half of businesses have told us they will struggle to pay their energy bills from April, and they cannot invest when they are fighting to survive. There is little in today’s announcement that will provide comfort to these firms. The government also failed to reform business rates which we have repeatedly called for. If the UK’s innovative growth industries are to remain competitive on the world stage, then government must shift the dial further on investment, both within the UK and from overseas."

Marco Forgione, director general of The Institute of Export & International Trade, said: "We are pleased to see the Chancellor announce policies which will further strengthen levelling up in the nations and regions, which we called for in our letter to him prior to the Spring Budget. These new powers for UK mayors and combined authorities in skills, energy and infrastructure will benefit businesses and exporters while helping to address regional inequalities."

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