Spring Budget 2023: What does it mean for business?
Greater Birmingham Chambers of Commerce
What is the Spring Budget?
The Spring Budget is a statement presented to the House of Commons by the Chancellor of the Exchequer which includes a review of the nation’s finances and the present economic climate, as well as the Government’s policy proposals across a range of measures, including taxation and public expenditure as examples. In the 2023 Spring Budget, the Chancellor made it a priority to tackle down high inflation, citing inflation as a scourge on the economy and attributing it to ongoing economic challenges.
Public Finances
The Chancellor announced that the Office for Budget Responsibility (OBR) project CPI inflation to drop from its current rate of 10.1% to 2.9% by the end of 2023.
The budget affirmed that although the economy will contract this year, it will not be heading into a technical recession, before going on to project growth figures of 1.8% in 2024, 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.
The OBR confirmed the government is on track to meet both its borrowing and debt fiscal rules. In the target year (2027-28), underlying debt falls to 94.6% of GDP (Gross Domestic Product). Underlying debt is forecast to be 92.4% of GDP next year, going on to peak in 2026-2027, before dropping in 2027-28 as highlighted above meaning that debt is on track to see debt falling as a percentage of GDP by the fifth year of the forecast.
Business Taxes
Among the key announcements in the budget were plans to allow full expensing for capital spending. From 1st April 2023 until 31st March 2026, the government set out that investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets. This means companies across the UK will be able to write off the full cost in the year of investment. Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment. Expenditure on plant or machinery for leasing is excluded from first -year capital allowances due to longstanding concerns about abuse and wide scope for error. The government plans to work with industry to identify possible policy solutions that appropriately mitigate these risks.
For loss-making, R&D intensive SMEs, the chancellor also announced that from 1 April 2023, SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure will be able to claim a higher payable credit rate of 14.5% for qualifying R&D expenditure. A technical note setting out more detail on this has been published alongside the Budget.
Further, the previously announced restriction on some overseas expenditure in R&D tax reliefs will now come into effect from 1st April 2024 instead of 1st April 2023, so that the government can further consider the interaction between this restriction and the design of a potential merged R&D relief.
Beyond these key announcements on business taxation, the government set out plans for a number of sector-specific reliefs.
These included plans for a ‘Brexit Pubs Guarantee,’ whereby duty rates of all alcoholic products produced in, or imported into, the UK will increase in line with RPI. Draught Relief will increase from 5% to 9.2% for beer and cider draught products and from 20% to 23% for wine, spirits based and other fermented draught products. Further, the government plans to legislate to make changes to the duty structure for alcoholic products, creating standardised tax bands based on alcohol by volume. The government additionally intends to introduce two new reliefs and transitional arrangements for certain wine products. These changes are expected to take effect from 1st August 2023.
Following a public consultation, the budget also announced that the film, TV and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions from 1st April 2024. This new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%. The expenditure threshold for high-end TV will remain at £1 million per hour. The new Video Games Expenditure Credit will have a credit rate of 34%. Qualifying expenditure for the Video Games Expenditure Credit will be expenditure on goods and services that are used or consumed in the UK. Games that have not concluded development on 1st April 2025 may continue to claim EEA expenditure under the current video games tax relief until this relief sunsets in April 2027
It was further announced that the temporary higher headline rates of relief for Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibitions Tax Relief (MGETR) will be extended so that from 1st April 2023, the headline rates of relief for the TTR and the MGETR will remain at 45% (for non-touring productions) and 50% (for touring productions). OTR rates will remain at 50%. From 1st April 2025, the rates will be 30% and 35%, and on 1st April 2026 the headline rates of relief for TTR and MGETR will return to 20% and 25%. The headline rates of relief for OTR will return to 25%.
The budget also set out that qualifying expenditure for theatre, orchestra, and museums and galleries exhibition tax reliefs will be changed to ‘expenditure on goods and services that are used or consumed in the UK.’ This will align the cultural reliefs with the audio-visual reliefs and ensure these reliefs remain compliant with the UK’s international obligations. Productions that have not concluded by 1st April 2024 may continue to claim EEA expenditure until 31st March 2025.
Further, the budget announced government plans to spend over £5 billion maintaining fuel duty at current levels for the next 12 months, including keeping the 5p cut in place.
A number of other changes to business taxation were announced, including expansion of the Community Investment Tax Relief (CITR), expiry of the Social Investment Tax Relief (SITR), along with plans for a systematic review of tax guidance and forms for small business over the next 24 months to make it easier for small businesses to interact with the tax system as they set up and grow.
Employment
For working parents and childcare providers, the government committed in this budget to provide £4.1 billion by 2027-28 to deliver 30 hours a week of free childcare for eligible working parents of children aged 9 months up to 3 years in England, where eligibility will match the existing 3 – 4 year old 30 hours offer. This is intended to close the gap between parental leave finishing and the current free childcare offer. To support delivery, the government also plans to provide £204 million in 2023-24 from September, followed by increases each year, to uplift the funding rate for the existing childcare offers. The government intends to proceed with changing staff-to-child ratios from 1:4 to 1:5 for two-year-olds to align with Scotland and comparable countries, and consult on further measures to improve flexibility for providers.
In addition, the Chancellor committed to introducing startup grants for new childminders, including for those who choose to register with Ofsted or a childminder agency, to support the costs of set up and to grow the childminder market, and set out plans to introduce a national pathfinder scheme for wraparound childcare in England, to stimulate supply in the wraparound market and support the ambition that all children should be able to access 8am-6pm childcare provision in their local area.
The government also committed to providing upfront support for childcare costs to parents on Universal Credit (UC) moving into work or increasing their hours in Great Britain (rather than support in-arrears), and to increasing support for those parents in Great Britain on UC who face the highest childcare costs, often because they are working longer hours, by increasing the UC childcare cost maximum amounts to £951 for one child and £1,630 for two children.
Further announcements intended to help people into employment included commitments to modernise and digitise mental health services in England, scale up community Musculoskeletal (MSK) hubs in England and introduce employment advisors into MSK services, and expand the Individual Placement and Support Scheme in England, which supports people with severe mental illness into employment. Alongside the budget, the government intends to set out a plan for health and disability benefits reform, abolishing the Work Capability Assessment in Great Britain and passporting the health top-up in Universal Credit via the Personal Independence Payment benefit. The Chancellor also announced plans to introduce a new supported employment programme for disabled people and those with long-term health conditions in England and Wales, matching participants with open market jobs and funding support and training, as well as plans to pilot integrated work and health hubs in England.
This budget also set out commitments to increase the Administrative Earnings Threshold (AET) for welfare recipients – the AET determines how much support and Work Coach time a claimant will receive based on their earnings, and this is expected to increase from 15 to 18 hours at the National Living Wage for an individual claimant. The government also intends to remove the AET for couples. This will mean a greater number of UC claimants, including those in-work and on lower earnings, and non-working or low earning partners on UC, will receive additional Work Coach support to help them take active steps to move into work or increase their earnings.
With the aim to extend working lives, the Chancellor further used the budget to announce reforms to pension tax thresholds. The government plans to increase the Annual Allowance from £40,000 to £60,000 from 6th April 2023. Individuals will continue to be able to carry forward unused Annual Allowances from the 3 previous tax years. The government will increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6th April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6th April 2023, and the government will also remove the Lifetime Allowance charge from 6th April 2023 (intending to fully abolishing the Lifetime Allowance in a future Finance Bill). The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 and it is expected that this will be frozen thereafter.
Further, the government set out plans in the budget to expand and improve the midlife MOT tool to support individuals with planning for later life across Great Britain.
The budget also announced plans to expand a subsidy pilot scheme to support small and medium-sized businesses in England with the cost of purchasing occupational health services.
It was additionally announced in the budget that the government will accept the Migration Advisory Committee’s (MAC) interim recommendations to initially add five construction occupations to the Shortage Occupation List (SOL), ahead of its wider SOL review concluding in the autumn. The government also committed to reviewing the SOL more regularly.
Education and Training
Regarding education and training, the government used the budget to introduce ‘Returnerships,’ a new offer promoting existing skills interventions to the over-50s, focussing on flexibility and previous experience to reduce training length. It is said that these will be supported by a £63.2 million investment for an additional 8,000 Skills Bootcamps in 2024-25 in England and 40,000 new Sector-Based Work Academy Programme placements across 2023-24 and 2024-25 in England and Scotland.
Further, the government committed to investing an additional £3 million over the next two years in the Supported Internships Programme to pilot an expansion of the programme in England to young people entitled to Special Educational Needs support who do not have an Education, Health and Care Plan.
It was also announced that the Train and Progress scheme, which increases the length of time that UC claimants in the Intensive Work Search regime can spend on full-time training from 8 weeks to 12 weeks (and to 16 weeks in certain subject areas which have Skills Bootcamps), while still remaining eligible for UC, will be extended to April 2025.
The budget also committed provision of £11.5 million to help Ukrainians fleeing the war who have arrived in the UK under the Ukraine Visa Schemes to boost their English language skills, enter employment, and support their integration into society. Further details, including additional groups who may be eligible for this support, are expected to be published in due course.
Environment and Energy
The Chancellor announced that the Energy Price Guarantee will remain at £2,500 for the next 3 months and that the government will look to end the premium that households on prepayment meters currently pay, by aligning their charges, with those charges paid by customers on direct debit.
The Chancellor has also announced the intention to protect the UK from future exposure to energy price shocks by investing into domestic sources of energy. This has been done through launching Great British Nuclear to support new nuclear builds. Furthermore, the Chancellor has announced the classification of nuclear energy as environmentally sustainable, which will enable nuclear energy to receive the same investment incentives as other sources of renewable energy. The commitment to nuclear is made further evident with the Chancellor announcing the intention to introduce a new competition for Small Modular Reactors, which is expected to attract revolutionary designs both from within the UK and across the world. The government’s ambition is to select the leading technologies by the end of 2023, which it will then look to co-fund in the UK.
Additionally, the Chancellor has reaffirmed the UK’s commitment to Net Zero by providing up to £20 Billion for Carbon Capture, Utilisation and Storage. Similarly, the Chancellor has announced that the government is extending the Climate Change Agreement scheme for a further 2 years to encourage energy efficiency measures.
Devolution
The WMCA (West Midlands Combined Authority) has secured new and significant longer-term funding agreements including 100% business rates retention for 10 years, worth £450 million.
It has also been confirmed the West Midlands will, from the next spending review, have a departmental-style arrangement with a single pot of funding negotiated with Government. This will give local leaders unparalleled control over spending on devolved areas, marking a seismic shift in power and influence from Whitehall to the West Midlands.
This financial certainty will enable local authorities and the WMCA to better plan and fund transformative investment in our region to create a fairer, greener, and better-connected West Midlands.
Key elements of this deal include a landmark housing deal worth up to £500 million, offering greater flexibility to drive brownfield regeneration and unique powers and funding to deliver affordable housing at pace, fiscal devolution, including retention of business rates for the next 10 years – worth an estimated £45 million a year to the WMCA and local authorities, and a new departmental-style budget arrangement with a single pot of funding. The deal also includes up to six levelling up zones, backed by 25-year business rate retention, with an expected total value to the region of at least £500 million, to target investment and encourage jobs and regeneration in areas agreed between the WMCA and Government and measures to tackle digital exclusion including greater influence over high speed broadband investment across the region and a £4 million fund for devices and data to get more people online. The deal will further allow the West Midlands greater local responsibility for developing and delivering careers advice and a partnership with Department for Work and Pensions to target employment support. In regards to transport, the deal provides for devolution of the bus service operators grant and a new partnership with Great British Railways to offer greater local oversight and control of public transport services, and the UK’s first formally designated transport sandbox to deliver cleaner and safer vehicles and innovative transport services to our streets faster while supporting new jobs and investment.
GBCC response
There was much to appreciate in this afternoon’s statement as the Chancellor put forward sensible options to tackle our inherent labour market shortages and turbo charge business investment in a bid to raise stagnant productivity levels. Support for working parents around childcare costs and pension reform will hopefully bring more people back to the labour market and ensure we retain experienced staff.
A move towards to full expensing around capex investment was also very welcome, however, for the measure to be truly effective, it is a policy that needs to be implemented permanently in order to enable long term investment at the firm level. The introduction of a new investment zone in the West Midlands also feels much more strategic and aligned to our regional strengths in education as opposed to the previous iteration - the challenge remains to ensure that jobs and investment are not simply being diverted from other parts of the region.
Although heavily trailed, greater devolution of powers to the WMCA is a step in the right direction – for levelling up to truly succeed, decision making powers need to rest with those who truly understand the economic contours of the region. The additional support for households struggling with rising energy costs felt inevitable and will play an important part in reducing inflationary pressures in the short term.
The lack of equivalent support for the business community will jar with a number of firms, given the new support scheme which goes live in April will be a lot less generous than its predecessor – we can only hope that wholesale gas prices continue to come down otherwise any rise could lead to real hardship, particularly for those hospitality and retail firms that are still struggling with huge debts racked up during the pandemic. A lack of reference to business rates reform was also disappointing to see – especially as innovative incentives could be linked to supporting businesses transitioning on their journey to net zero.
The Chancellor could also have gone further in helping businesses overcome recruitment challenges – revisiting the parameters of the Shortage Occupation List and introducing more modular short courses for Apprentices would have an immediate impact on boosting employment numbers. As a Chamber we will continue to gather feedback from our members on how these announcements will impact their businesses and ensure their views are absorbed in regional and national policy frameworks.