Home » The budget aims to bring inflation down to 2.9% by the end of 2023
Jeremy Hunt, the UK’s Chancellor of the Exchequer, unveiled his budget with a goal of ending the country’s stagnant growth . The budget aims to bring inflation down to 2.9% by the end of 2023, and increase the economy’s growth rate year on year, with no recession in sight in 2018. Among the changes announced were the abolition of the lifetime allowance for pensions, 30 hours of free childcare for all children over nine months, and the addition of GBP11bn ($14.7bn) to the UK’s defence budget by 2025 . However, the budget has received mixed reactions, with some business leaders welcoming the proposed reforms, while others expressed concern about the impact of the spending cuts on public services .
Mike Hodges, Partner at Saffery Champness, comments:
“In principle separating out cryptoassets on the capital gains pages of self-assessment forms from 2024-25 seems like a smart move and one that will hopefully help HMRC better understand crypto receipts, as well as helping remind taxpayers that they need to be considering the tax position of their crypto holdings – if they aren’t already – and help to avoid unnecessary taxpayer confusion. Adding specific boxes and explanatory notes can only be a positive step in ensuring that the correct gains are declared in the correct way. The Spring Budget costing document estimates that this measure could raise an additional £10 million per year of CGT revenues.
With the CGT annual exempt amount for individuals set to be reduced to £3,000 from 2024-25, I speculate that this move may partly be in anticipation of more taxpayers being required to complete the capital gains pages in respect of their crypto gains, whereas previously their gains may have been covered by the more generous £12,300 exemption enjoyed until 2022-23.”
Ritam Gandhi, founder and director of Studio Graphene
“This Budget was a mixed bag. The PM makes a habit of mentioning that he’s spent time in Silicon Valley, while the Chancellor often references his own entrepreneurial experiences. So, it stands to reason they’d champion entrepreneurship, particularly in tech, and these topics were certainly at the heart of Hunt’s speech – yet he also overlooked some key issues inhibiting innovation and growth.
“Yes, there were positives: there were boosts for AI companies. Tax cuts for R&D and those investing in IT and machinery in the UK are to be welcomed. And the investment zones sound promising, but exactly how and where the £80 million of funding will be spent in those 12 hubs remains to be seen. In the meantime, some of the most common challenges UK tech businesses face were not adequately addressed – namely, accessibility of funding for scaling businesses (kicked down the road to the Autumn Statement), and helping plug the tech skills shortage that holds back so many digital companies.
“The current axis we have in 10 and 11 Downing Street should give tech companies cause for optimism. But their rhetoric of wanting to make the UK a “tech superpower” still requires more substance, and policies cannot be limited to isolated “zones”; they must be available to tech firms across the UK. Hopefully more will follow in the Autumn to build on some of the positive commitments outlined today.”
Mark Smith, Partner R&D Incentives and Grants Ayming UK
The Government clearly recognises that its decision to cut tax relief for all SMEs in November undermines its ambition to make Britain the next Silicon Valley. In particular, the Government’s new funding for R&D-intensive businesses will allow the UK’s most innovative companies to do what they do best. The structure the Chancellor ran through sounds sensible and clear, with 40 per cent of spend being a straightforward figure and goal for others to work to.
“However, it is a lot more targeted and therefore not as accessible. Forty per cent of spend on R&D is very high, so only a very small portion of UK businesses will be eligible. The government estimates about 8,000 businesses could benefit, which is about 10% of current claimants. All other small businesses that don’t meet the threshold will still see a cliff edge in funding, which will most certainly have an impact on the UK’s innovation as a result.
“Furthermore, while its definition of “research-intensive SMEs” is clear, we don’t know which companies and what activity will be eligible. It would be great to see green innovation incoprotated into this. It was a little disappointing not to hear more mention of funding relating to R&D in environmental technologies, which the UK could be a world leader at. To drive forward the sustainable transition, specific tax incentives must be considered around green R&D. If they can include that in definitions, it could provide a boost both to our innovation and net-zero objectives.
“As we enter the new tax year, businesses outside of the life sciences and tech sectors will be allocating their innovation budgets without knowing how the reduction to the scheme will affect them. The sooner the Government can provide clarity, the better.
“In addition, the Government’s new rules around capital expenditure will help to stimulate innovation. These will allow companies to reduce their tax burden by investing in assets that are then used for R&D activity. It is less direct but ultimately allows businesses to invest more.
Dr Mohammad Mahbubur Rahman, Lecturer in Economics, University of Salford Business School, comments:
“Both demand-pull (e.g., COVID support) and cost-push (e.g., Brexit, Russian-Ukraine war, etc.) have caused the current suffering from high inflation. In this situation, any further demand-pull policies (e.g., income tax reduction, salary increases, etc.) without significantly impacting economic growth would cause further inflation. Rather, reducing cost push policies, such as increasing cost and production efficiency by reducing disguise unemployment and increasing skilled labour supply, will enhance economic growth and reduce inflation.
“Jeremy Hunt’s Spring Budget should be welcomed, as it focuses on policies regarding supply-side enhancements. Lowering business tax, removing barriers that stop people who want to from working, reforming the childcare system, energy bill and fuel cost supports, and £400m of Levelling Up funding, including the creation of 12 new investment zones, are all about supply side boosting policies, which will increase the economic growth with declining inflation. Specially, childcare support will also reduce disguised unemployment, increasing the productivity of existing labour.
“However, for long-term sustainable growth, the country needs a significant investment in higher education to increase skilled labour. As we know, the NHS has a significant shortfall of doctors and nurses. This Budget did not go far enough to tackle that shortfall. Although the current unemployment rate is less than 4%, the actual rate will be much higher if we include inactive and disguised labour in the labour force. This Budget does not have any significant policy recommendations for reducing disguised unemployment.”
Jenny Tragner, Director and Head of Policy at the UK’s leading R&D tax relief consultancy, ForrestBrown, said:
“Today’s Budget was peppered with positive policies to encourage innovation but lacked a coherent narrative to help businesses navigate an increasingly complex tax landscape.
“The Chancellor set out his stall to harness British ingenuity, so it is fitting he has taken an inventive approach to reforming R&D tax relief. However, while enhanced support for SMEs is welcome, the qualifying criteria introduces further complexity for businesses already struggling to make sense of the raft of reforms announced at previous fiscal events and set to come into force this April. A higher tax credit will be available for R&D intensive SMEs – those whose R&D expenditure equals at least 40% of total expenditure.
“This new measure will ease the blow of last Autumn’s rate decrease for some businesses, but as well as the complexity added, applying the more generous rate only to loss makers risks penalising businesses once they become successful. All of this for a change which the government proposes is superseded by the introduction a new singe scheme for R&D tax relief next year.
“Hidden in the documents published alongside the Budget speech is confirmation that the measures to restrict R&D relief on overseas R&D activities will be delayed for a year to enable further consultation and consider how these rules will work alongside the proposed combined future incentive. It was encouraging to see that the government has listened to feedback, with potential for mitigating measures to be included in the design of the new single scheme.
“By contrast, capital allowances have been simplified with the introduction of full expensing, which had been widely trailed in the media following substantial pressure from business and industry groups. A successor to the super deduction is welcome. We still lack a tangible incentive for capital investment in R&D facilities and assets.
“Investment zones could also provide a catalyst for regional innovation, with the spillover effects of R&D investment widely recognised. More than seven out of ten UK companies decide where to invest in innovation based on tax incentives and grant funding, so creating a supportive ecosystem for R&D can clearly be a powerful tool for levelling up. But it is concerning that no region south of Birmingham is set to benefit.
“The announcement of £20bn of support for early development of carbon capture, usage and storage (CCUS) could also be a game-changer for innovative businesses in this emerging sector – but ensuring they take an optimal approach to grant-funding and tax relief will be important to delivering the maximum benefit.
“Measures to support cutting-edge sectors such as Artificial Intelligence and quantum computing with direct funding budgets are also positive, but while grant funding by its nature requires the government to ‘pick winners’, it is important that tax incentives do not become so restrictive that we risk missing the next emerging technology – whatever it might be.”
Michael Saunders, Senior Advisor at Oxford Economics
The Budget provides extra near term support for the economy, with the three-month extension of the energy price cap, a year-long freeze in petrol taxes and a three-year rise in firms’ investment allowances. This, along with the drop in wholesale energy prices, means the economy is likely to be roughly flat during this year rather than the significant decline in activity that seemed likely a few months ago.
But this extra support is only temporary. Over the medium-term, the UK’s fiscal options are constrained by the pressure for more public spending caused by population ageing and the economy’s low underlying growth trend. The Budget projects that, over the next five years, the tax burden will rise further with low public spending growth (and cuts in public investment) to ensure the public finances are on a sustainable path. That painful squeeze will weigh on economic activity in coming years.
The Budget contains the faint outline of a plan to improve the economy’s supply-side and lift the economy’s dismal medium term growth trend, with the measures on childcare, labour supply, investment allowances and pensions.
But these are only a first step. The Chancellor has not reversed the damaging cuts to public investment announced last autumn, while the increase in firms’ investment allowances is only temporary — and hence will not affect the longrun trend in the capital stock. Low housebuilding remains an obstacle to labour mobility, and the OBR expects net housing supply will remain below the 2017-19 average in every year of its forecast. The economy remains constrained by the rise in trade barriers with Europe caused by Brexit.
The OBR expect a slight improvement in the economy’s potential output from the labour supply measures. Nevertheless, the economy’s underlying growth trend in the next five years will remain low. Further supply-side action will be needed if the UK is to escape the low-growth rut of the last decade.
Brian Byrnes, Head of Personal Finance at Moneybox
“With one fell swoop the Chancellor abolished the Lifetime Allowance for pensions. Previously, anyone who amassed a pension above £1.07m would have paid a punitive high rate of tax at withdrawal or death. It was expected this limit would rise to £1.8m but in a surprise twist the Chancellor abolished it completely.
“This will certainly help the group the Chancellor named, relatively well paid NHS doctors and consultants. However, even the proposed rise to £1.8m would have felt out of reach for most people saving for retirement now and there was little in today’s budget for those struggling to accumulate a pension pot up to even a tenth of that amount.
“We know that many people take control of their pension savings far too late, and are often unaware of how much they even need for retirement until much later in their savings journey, making it harder to save what they would need for their ideal post-working life. It will be interesting to see the longer-term impact of the abolition of the pension lifetime allowance (LTA) announced in the Budget, but one thing is certain: we all need to work together to bring retirement planning higher up on the financial agenda for the rest of 2023 and beyond.
“In a step that will provide significant help to struggling families, the Chancellor announced that the free 30 hours of childcare a week that three- and four-year olds get will be expanded to cover children over nine months old. The government also announced a £600 incentive for those looking to become childminders, rising to £1,200 if they join through an agency.
“In addition, families on Universal Credit will now get childcare support paid for upfront rather than having to claim it back, which caused significant cash flow issues for many families. Finally, the amount families on Universal Credit can claim for childcare support increased to £951 a month for one child, and to £1,630 for two children.
“This is a large expansion of the government provision for childcare – and it fits in with the Chancellor’s overall message to remove as many barriers as possible for those who want to return to the workforce.
“It’s positive to see that the government is providing more support and making it easier for parents to access it. However, the support isn’t being offered to all parents and the cost of childcare in the UK is so high (£14,836 per year*) that returning to work will continue to remain unaffordable for some parents.
Energy bill support
“Over the course of the winter the government had capped the price of a “typical” household energy bill at £2,500. This was due to rise in April 2023 to £3,000 – but today that rise has been scrapped.
“However, the £400 winter discount most people have received on their bills will finish, so most households will see their bills rise. The hope is, that with wholesale energy prices lower than they were last year after a relatively mild winter, household bills will start to follow in the coming months.
“Experts also predict that the Ofgem energy price cap (the maximum amount suppliers can charge households) will come down to about £2,100 by July – and remain at this level. This would lower the average household bill and essentially make the government’s price guarantee redundant.
“The 5p fuel duty cut which was announced last March has been extended for the next 12 months until March 2024. This saves the average driver £100 next year which is positive news and alongside the government’s energy price guarantee, should help to ease some of the pressure that the cost of living crisis has put on savers’ finances.”
Dr Henry Balani, Global Head of Industry and Regulatory Affairs for Encompass Corporation
“Avoiding a technical recession in 2023 is crucial for business optimism, empowering confidence in investment, trading and technology adoption, as well as promoting economic growth.”
“Growth being a key priority in the Chancellor’s statement, alongside reaffirming technology’s place and aims, is important to positioning the UK as a leading hub to do business, which can contribute to economic success through international collaboration.
”While not surprising to see the focus on economic growth, greater attention should be placed on tackling the issue of financial crime, as part of a long-term vision to promote the UK as a world-class financial centre. Ongoing policy updates in the regulatory space are vital to the development and implementation of critical solutions, especially those powered by automation, that perform Know Your Customer (KYC) and Anti-Money Laundering (AML) tasks to improve the detection and prevention of financial crime in the UK.
“A more open approach to data access, for important information such as Ultimate Beneficial Ownership (UBO), via APIs is another area that I had hoped to see addressed. Reaffirming a public access policy towards data would enable financial institutions to gain improved visibility to key information that can help the financial services sector in the fight against financial crime.”
Co-founder and CEO of Wayhome, Nigel Purves, commented:
“The nation’s first-time buyers are currently tackling the highest cost of homeownership on record and it’s bitterly disappointing to see the government turn their back on them yet again. Having afforded them some brief stamp duty respite during the pandemic, they clearly feel their job is done and have now left them out in the cold to fend for themselves.
While we certainly weren’t expecting another stamp duty reprieve, nor do we believe these intermittent discounted buying costs are the answer, a commitment to at least building more homes would have been a start.
We were also hoping to see amendments to stamp duty laws to bring parity for all homebuying schemes. This would allow those who utilise additional methods, such as Gradual Homeownership, to be afforded the first-time buyer rate of stamp duty tax when they do come to purchase their home, rather than the rate applied to an existing homebuyer.”
Managing Director of Stripe Property Group, James Forrester, commented:
“While we certainly need a better balance of investment across the nation, the Levelling Up Fund has so far been lopsided, to say the least.
As it stands, the North West has seen a substantial amount of investment, while the North East has been largely ignored. So today’s news that the region will benefit from the next round of investment is, of course, positive for the regional economy, along with the economies of the other areas earmarked to benefit.
However, we can be forgiven for holding our breath until we know for sure just how the latest £80bn has been allocated and which areas of the nation stand to see the largest boost.”
CEO of Alliance Fund, Iain Crawford, commented:
“It’s disappointing not to see any new ambitions with regard to housing delivery in today’s budget. There’s been a severe lack of new homes reaching the market in recent years and so you would have hoped the issue of housing supply would have been higher on the agenda.
Instead, it seems as though the government has chosen to throw in the towel with no new targets set and this certainly isn’t going to help solve the housing crisis.”
Head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, commented:
“Rather than address the housing crisis head on, the government has chosen to shy away from the issue, relinquishing any accountability by failing to set new housebuilding targets.
This hands off approach is sure to see the already inadequate level of new homes reaching the market decline even further. For homebuyers, this means less choice, higher prices and an even tougher task when attempting to climb the property ladder.”
CEO of RIFT Tax Refunds, Bradley Post, commented:
“The decision to abolish the lifetime allowance for pensions may seem like a generous offering from the government, but the reality is that it will only benefit a minute percentage of society who are already benefiting from huge pension cash pots.
The average pension pot sits at around £180,000 to £190,000, so for the average person, today’s news is rather irrelevant.
Alas, the chancellor went ahead with his promise to increase corporation tax today from 19% to 25%, a 31% rise in real terms for medium and large companies. This move will potentially net him another £10b to £12bn in annual tax revenue at the expense of hard-working businesses with profits over £250,000. Lowering this tax would, we suggest, have been the best way to truly administer a ‘Budget for Growth.”
CEO of Octane Capital, Jonathan Samuels, commented:
“The government has made numerous legislative changes to ‘improve’ the rental market at the expense of the nation’s landlords, changes that have ironically led to higher rents, less accommodation and lower standards.
We were hoping that they had finally realised the error of their ways and wanted to once again tempt buy-to-let investors back into the fold.
Unfortunately this hasn’t been the case and, with them also pushing forward with changes to Capital Gains Tax allowances, we expect to see more landlords exit the sector as a result.”
Director of Benham and Reeves, Marc von Grundherr, commented:
“Another missed opportunity for the government to finally do away with the archaic and unnecessary buyer tax that is stamp duty. Doing so would have offered a hand up to thousands of beleaguered buyers who are hard pressed to overcome the high cost of homeownership and helped ensure the market puts its recent cold spell well and truly behind it.”
Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:
“The property market has been treading water since last September’s shambolic mini budget and we were looking to the spring statement for a shot in the arm that would reignite the furnaces of buyer demand and help negate any prolonged period of subdued activity.
Unfortunately this hasn’t materialised and the nation’s homebuyers have been shown the cold shoulder once again. While we expect the market to hold fairly firm over the coming year, it’s extremely unlikely that house prices will now rally and the pandemic highs of previous years will be resigned to the record books.”
Jason Ferrando, CEO of easyMoney commented:
“ISAs have become increasingly popular in recent years and the sector has evolved to provide investors with a range of options to suit their individual needs, whether it be the long established Cash ISA, or more recent offerings such as the Innovative Finance ISA.
So while the government’s decision to keep the current ISA threshold frozen is certainly not bad news for the nation’s savers, we would have liked to see more done to streamline ISA offerings and make it easier for savers to diversify their portfolio with greater ease.”
CEO and Founder of ID Crypt Global, Lauren Wilson-Smith, commented:
“AI is an incredibly fast moving sector and one that holds huge potential for the future with regard to how we live and work.
The proposed ‘AI sandbox’ will no doubt help accelerate the growth of the sector and provide a much needed platform for many innovators. Of course, while the increased speed of innovation is a positive, we must make sure that we don’t jeopardise the security and safety of the nation in the process.”
Aman Behzad, founder and managing partner of Royal Park Partners.
“Sustainable and long-term economic growth will only work if opportunities to accelerate research and development are shared between regions across the UK.
“In a positive move that recognises the strength of innovation across the country and encourages further progress, the Chancellor’s plans for 12 new investment zones to “supercharge” growth in hi-tech industries is one of the punchier developments to come from today’s announcement. Although there is a long way to go, this is one step towards making the UK a tech superpower.”
R&D / tax credits:
“There was a lot of frustration following the Autumn Budget about R&D tax credit scheme, and it is disappointing that the Chancellor did not use this opportunity to review the cuts to the tax incentive policy. Restoring R&D support for SMEs is paramount to encouraging the development of new technologies and the long-term success of innovative businesses. The government is cutting support in the wrong places.
“While large companies will benefit from the generosity of the R&D expenditure credits (RDEC) scheme, which is set to increase from 13% to 20%, it is once again smaller businesses that are left hanging. De-incentivising SMEs to spend in the UK threatens not only overall R&D output, but also risks startup founders offshoring more tech development overseas.
“Additional tax support has been proposed for R&D-intensive SMEs, which is a welcome policy. However, this leaves many SMEs that fail to meet the criteria without similar recourse.”
“It is no secret that incentivising innovation is the way to build a stronger economy. While today’s announcements will offer some inspiration to startups across the UK, there was a missed opportunity to deliver policy reforms that would truly turn the dial up on innovation.
“This week the government proved its commitment to supporting UK tech businesses, with a speedy resolution to the SBV UK crisis. Yet a more long-term show of support is needed. With the closure of Tech Nation and the Help To Grow: Digital scheme, there are gaps to fill to incentivise further technology adoption and R&D. A focus on AI through new incentives and the launch of an AI sandbox is encouraging, however other emerging technologies deserve similar attention.
“All eyes are now on the newly created Department for Science, Innovation and Technology to see what role it will play in empowering our nation of ambitious entrepreneurs, and giving them the tools, funding and backing they need to flourish.”
Jatin Ondhia, CEO of Shojin, said:
“Prudence and stability were clearly right at the heart of Hunt’s Spring Budget. Undoubtedly, the hangover effect of his predecessor’s gargantuan economic gamble – and the corrective fiscal squeeze that followed – left little room for any wild cards.
“From the perspective of where the government and economy found itself in late 2022, a relatively quiet Budget is not a bad thing. It shows they are being financially responsible. However, at a time when sky-high inflation is compounding the housing crisis, is no news really good news? Building costs are through the roof and access to finance remains a big issue for developers, in turn damaging efforts to boost the UK’s housing stock.
“Quite ridiculously, the revolving door for housing ministers has left the UK with six different MPs holding the role in the space of a year, while the scrapping of mandatory housebuilding targets, means that what we needed today was some clear policies to get Britain building. While all eyes will remain on Hunt and Sunak’s conservative fiscal policies, the lack of decisive action on planning reforms, construction output and the lack of affordable homes could be a dangerous oversight. Evidently, the private sector will have to forge ahead to ensure property development continues at pace.”
Paresh Raja, CEO of Market Financial Solutions, said:
“It’s no secret that there are issues requiring attention in the property sector, most notably where housebuilding activity, planning regulations and the national housing stock are concerned. Clearly, as Hunt looked down his list of priorities for this particular Budget, these items were overlooked in favour of other pressing concerns.
“In truth, the property market could benefit from the Chancellor’s prudent economic approach. While there may not have been any noteworthy policies or investments relating specifically to property, his efforts to combat the cost-of-living crisis and bring much-needed stability to the economy should be welcomed.
“We saw how tumultuous the effects of the mini-Budget were back in September. The ill-fated announcement fuelled significant interest rate changes and a great deal of uncertainty. Hunt has favoured a cautious approach, and the property market will likely benefit from a sense of economic calm, particularly if inflation continues to fall and interest rate hikes come to an end.”
Yoko Spirig, co-founder and CEO of Ledgy:
“Looking over from Switzerland, the UK has always stood out as a positive example of a progressive tech hub that champions innovation and balanced risk-taking. This is one of the key drivers for foreign direct investment and why European firms like Ledgy choose to set up offices and operations in the UK. For the UK to maintain this position and continue to attract tech firms, it needs to continue creating and fostering the optimal environment for companies to come and operate here.
“In recent months, there have been some concerning developments such as the closure of Tech Nation and planned cuts to the R&D tax credit scheme. These decisions had been met with widespread criticism from across the tech industry as these have historically driven innovation and tech investment in the UK.
“Today’s announcement of an enhanced R&D tax credit scheme for SMEs is positive for the tech ecosystem. This reversal, coupled with the UK government’s intervention to support tech businesses through the weekend’s Silicon Valley Bank crisis, shows the UK is still an attractive place for tech firms and will help ensure it stays out in front as a positive example for other European markets.”
Tara Flynn from Choosewisely.co.uk said:
“It’s always been unfair for households with prepayment meters, who are often vulnerable or have low incomes, to be charged more than other customers. Therefore, it was morally correct to ensure that prepayment meter customers pay the same as everyone else, and this action should have been taken much earlier”.
Mark Smith, Partner R&D Incentives and Grants Ayming UK
“I sincerely hope to see the Chancellor reverse the cuts to the SME scheme. The intended cut to the scheme would a disaster for the UK’s innovation. It would lead to thousands of businesses reducing R&D investment and moving R&D activity abroad instead. The Government has emphasised the importance of innovation, but the rhetoric doesn’t match up to the reality.
“The chancellor himself has said that turning the UK into the next Silicon Valley relies on the innovation of small businesses. It is therefore very counterintuitive to cut the SME scheme. These credits provide thousands of SMEs with funding which they need to invest in R&D.
“The primary driver of these cuts is the fraud and abuse of the scheme. But instead of cutting vital innovation funding, the Government should use technology to solve the fraud problem. The Treasury should provide HMRC with a simple, intelligent portal for applications. This would improve HMRC’s ability to detect fraud and streamline application processes for businesses. It gets to the root of the problem.”