On Wednesday 15th March 2023, the Chancellor Jeremy Hunt addressed the nation at the House of Commons. Mr Hunt outlined the second Budget of his tenure and the first main Budget in Spring. With a cost of living crisis still in full swing and a slow growing economy to contend with, many analysts have found it hard to predict what he will announce.
It seemed the Chancellor’s main priority this Budget was to continue to slash the UK’s borrowing deficit. As well as this, the incentive to encourage people back to work has been well reported. Office for National Statistics (ONS) figures show that in the financial year to January 2023, the public sector borrowed £116.9bn. Although this was £7bn more than in the same period last year, it was £30.6bn less than the Office for Budget Responsibility (OBR) fiscal watchdog had forecast. This was encouraging to see for the Chancellor going into the Budget. Less encouraging was unemployment statistics, standing at 3.7% in January 2023. This was the same as the previous three months, and one of the lowest unemployment rates since 1974.
There were lots of announcements to talk about, from 30-hour free childcare costs massively expanded, to tax breaks for businesses amidst corporation tax rising. We break down the Chancellor’s Spring Budget announcements in a nutshell…
Inflation Down As Recession Is Cancelled
According to the OBR, the rate of inflation is forecast to fall to 2.9% by the end of 2023. This will also mean the rate of price rises is set to slow by more than previously expected this year.
Inflation is currently 10.1%. Last November, the Office for Budget Responsibility predicted that the average inflation rate for 2023 would be 7.4%. It now expects 2.9% by the end of 2023. As well as this, because of changing economic factors, the UK will not now enter a ‘technical recession’ this year. The Chancellor claimed, “They forecast we will meet the prime minister’s priorities to halve inflation, reduce debt and get the economy growing.”
30 Hours Free Childcare For One & Two Year Olds
Perhaps the biggest headline came in the form of 30-hours free childcare extended to children from 9 months of age. Estimated to cost £4 billion, this is a huge incentive aimed at getting parents back to work quicker. The process will be staggered out and only be eligible for term (38 weeks of the year). The first phase coming in April 2024, with all 2-year-olds eligible for 15 hours per week of free childcare. September 2024 will see all 9-month-olds to 3 year old children eligible. Finally, by September 2025, all 9-month-olds to primary school age will be entitled 30 hours of free childcare a week.
Currently, all families with three and four-year-olds qualify for 15 hours of free childcare a week, over 38 weeks. Households can qualify for 30 hours of free childcare if parents earn the equivalent of 16 hours a week at the national minimum or living wage. To coincide with this, parents receiving Universal Credit will now get up to £951 for one child. For two children, they will receive £1,630 per month. This will now be paid upfront. Furthermore, there are incentive payments of £600 for childminders joining the profession. This will rise to £1200 if they join through an agency, and is designed to support this huge childcare package.
Energy Price Guarantee Extended
An extension to the Energy Price Guarantee (EPG) was already confirmed by government in the early hours of the morning. The £2500 Energy Price Guarantee will continue for at least another three months from April. A planned rise of £3,000 was set to happen but has been scrapped. This is in order to provide people with support on their bills. The EPG is the amount an average household will spend in a year. It is expected to save £160 per household.
The OFGEM price cap between April and June stood at £3280, however this is now overridden by the extension announcement. The Chancellor stated, “High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level. With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”
Tax Breaks For Businesses
Seeking to limit the impact of raising corporation tax from 19% to 25%, due in April, as well as the ending of the Super Deduction, the Chancellor announced a string of tax measures for businesses. Businesses will now have the opportunity to offset 100% of their investments in the UK against profits to reduce their tax bills under the scheme.
This capital allowance is expected to cost about £11 billion in full, with costs falling over time. At first, the scheme will include upfront tax break for new capital spending, with allowances for old investment currently written off over a number of years.
A further update to R&D policies as small or medium-sized businesses will be able to claim a credit worth £27 for every £100. This is only eligible if they spend 40% or more of their total expenditure on R&D. The additional tax support will apply to research intensive startups across many industries.
The Chancellor stated, “An eligible cancer drug company spending £2m on research and development will receive over £500,000 to help them develop breakthrough treatments. It’s a £1.8bn package of support helping 20,000 cutting-edge companies who day-by-day are turning Britain into a science superpower.”
Tax-Free Pension Allowance Increase
Pensions is something which was high up on the Chancellor’s wish list to tackle. In similar vein to extending free childcare, the incentive is to encourage early retirees back to work. A significant increase of the annual tax-free allowance for pension contributions from £40,000 to £60,000 was confirmed.
As well this, the so-called lifetime allowance (LTA), which is the maximum amount workers can pay into their pension pot tax-free, has been abolished. The current £1,073,100 limit was due to last until 2026, yet this is now fully scrapped in a huge boost to drive more people back into employment.
We hope this has outlined to you the main announcements of the Spring Budget 2023. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.