NOVEMBER STATEMENT FOR STABILITY: MARCH STATEMENT FOR GROWTH

The Chancellor gave his Spring Statement today, with much of the key points announced in advance (except one big surprise). The main purpose of the Spring Statement is an economic update and spending review, with a few tax bits. As this was a Budget for growth, there were a few tax points, mainly around tax reliefs/breaks, as opposed to increases.

The Chancellor opened his statement by stating that growing the economy was the priority and this would take the form of a back to work Budget.

Despite lobbying from his own MPs and business organisations, the corporation tax increase (25% on profits >£250k) on 1^st April will go ahead. (The Chancellor advised only 10% of UK companies would pay at the full 25% rate!).

Economic Update/Forecast

• The Chancellor announced that the economy will avoid a “technical recession” this year, despite the size of the economy falling by about 0.2% according to the Office of Budget Responsibility (“OBR”).  It is not a "technical recession", although the economy is expected to shrink, as it is not predicted to fall across two seasons (three-month periods) in a row; the definition of a recession. The prediction of a 0.2% reduction is however better than thought last autumn, 1.4%;
• The OBR forecasts that the UK economy will grow in every single year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027;
• The government is on track to reduce debt. Underlying debt will be 92.4% of GDP by next year, falling every year after until 2027-28.  The Chancellor says they are "meeting our plan" to have debt falling by the fifth year of forecast and that debt as proportion of GDP remains lower than Canada, US, Italy and Japan;
• Inflation will fall to 2.9% by the end of 2023.

Cost of Living Crisis

Before getting to the detail of how to increase productivity and grow the economy, the Chancellor set out measures to continue to help families with the cost of living:

• Government subsidies limiting typical household energy bills to £2,500 a year will be extended for three months, until the end of June, when energy costs are expected to fall;
• Energy charges for prepayment meters will be brought into line with prices for customers paying by direct debit;
• The 5p cut to fuel duty on petrol and diesel, due to end in April (announced last year), is to be retained for another year;
• From August, alcohol taxes in pubs in relation to draught products to be 11p in the pound lower than the rate in supermarkets.

Business Growth & Increasing Productivity

The Chancellor delivered the main part of his speech around what he called the four pillars of industrial growth, all beginning with E – Everywhere, Enterprise, Employment & Education.

Everywhere is getting growth across the UK, spreading opportunity everywhere, with the need to harness untapped growth potential outside of London.

Measures to spread growth across the UK:

• Giving local leadership more power, having the decision making and tools to deliver for their areas, giving greater control over local transport, skills, employment, housing, innovation and net zero priorities, as well as single funding settlements at the next Spending Review; 

• Having first been announced in the September fiscal statement (the mini-Budget, the majority of measures which didn’t last), twelve Investment Zones were announced to catalyse twelve growth clusters across the UK, including four across Scotland, Wales and Northern Ireland. The England areas to form part of the Investment Zones are West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. The Investment Zones will have access to interventions worth £80 million over five years, including tax reliefs and grant funding; 

• The government is also providing additional funding for local projects to encourage growth and support communities, including: over £200 million for 16 high quality regeneration projects, £200 million for local authorities to repair potholes and improve roads, over £100 million of support for local charities and community organisations, and over £60 million for public swimming pool providers to help with immediate cost pressures and make facilities more energy efficient;
   

Enterprise 

The Chancellor announced a number of measures to attract and support most business, but no withdrawal of the pending corporation tax increase. The Chancellor highlighting that UK investment was low with a 19% tax rate, so increases in the rate should have no impact on investment.

• Therefore, as expected, a measure to support capital investment in business has been introduced, called Full Expensing, for 3 years from 1 April 2023, to replace the 130% tax Super Deduction which ceases the end of the month;  More details can be found  HERE. 

• Despite all the noise around SME R&D tax credits recently re: being abolished, and HMRC’s enquiry activity, an enhanced R&D intensive SME relief for loss making companies has been introduced. Creative industries have also benefited from increased tax reliefs;  More detail can be found  HERE. 

• The Medical & Health Regulatory Authority will be given powers to maximise use of  Brexit freedoms to accelerate the approval of drugs, medicines, and medical devices; 

• More Government support for Artificial Intelligence (“AI”) businesses, including an annual competition for ten years, with an annual prize of £1m.

Employment 

The Chancellor at this point of the speech detailed measures that were all about getting individuals back to work, or retaining them in employment, with the growth in the inactive workforce.

• A white paper was released on disability benefits, including plans to abolish the work capability assessment and to separate benefits entitlement from an individual’s ability to work. It is hoped that this means that disabled benefit claimants will always be able to seek work without fear of losing financial support; 

• For individuals who are on Universal Credit without a health condition and looking for work, sanctions will be applied more rigorously to those who fail to meet strict work-search requirements or choose not to take up a reasonable job offer; 

• For those working low hours, the Administrative Earnings Threshold will rise from the equivalent of 15 hours to 18 hours at National Living Wage;

For those in work or those who have recently left where the decision has been driven by the taxation of pension savings, particularly doctors in the NHS: 

• The cap on the amount individuals can accumulate in pensions savings over their lifetime before having to pay a tax charge - currently £1.07m - will be abolished.  (Prior to the speech it had been leaked that the cap might rise, but not abolished);
• The tax-free annual allowance for pension contribution to rise from £40,000 to £60,000, having been frozen for nine years.

Both of the above and some other pension changes will take effect from 6^th April, and more information can be found  HERE.

Education

This final part of the speech was not so much about the education system, but supporting parents/careers with childcare, with cost of childcare being seen as a major obstacle to individuals re-joining the workforce. Many measures had been announced earlier in the morning before the Chancellor stood up.

• To increase the number of childminders, an incentive pilot payment scheme of £600 for childminders joining the profession has been introduced, and £1,200 if they join through an agency; 

• Increase the funding to nurseries, £204m from this September rising to £288m next year, an average of 30% increase in the two-year-old rate. 

• The rules on how nurseries operate will be changed, the minimum staff to child ratio will change from 1:4 to 1:5 for two-year-olds in England, though this will remain optional; 

• Parents on Universal Credit will now receive up to £951 for one child and £1,630 for two children per month, which will now be paid upfront; 

• Working parents of two-year-olds will be able to access 15 hours of free care from April 2024 (currently you have to be in receipt of certain benefits); 

• From September 2024, the 15 hours will be extended to all children from 9 months upwards; 

• From September 2025 every single working parent of under-fives will have access to 30 hours free childcare per week (currently means tested).

It is assumed the childcare provisions are being phased in to enable childcare providers to gear up, for what the Chancellor hopes will be an increase in the numbers using the system.

More detail on the main tax announcements, the full expensing of capital expenditure, R&D and the pension changes can be found in the Tax Changes 2023 blog.