The Chancellor needs to encourage confidence and optimism in his Spring budget.
The Autumn Statement – Jeremy Hunt’s first as Chancellor – in November was a dull affair as it was designed to steady the markets following the damage done by his predecessor - full of tax allowance and band freezes to raise future tax revenue. Four months on and we are all waiting for his Spring Budget which will be accompanied by a full fiscal statement from the OBR.
The Chancellor has already stated his main objective is to create and maintain stability to counteract or diminish the impact of market volatility. The Budget no doubt therefore will focus on measures which will support the Government’s economic plan to halve inflation, grow the economy and reduce public debt. The Chancellor has said that the economic plan will be based on four ‘E’ pillars of Enterprise, Education, Employment and Everywhere whilst driving a long-term ambition for the UK to have “the most competitive tax regime of any major country.
He will be comforted in the latest figures from the Office for Budget Responsibility which forecast in November that the economy would shrink by 2% in 2023. Latest data suggest they may upgrade their 2023 GDP forecast after recent figures showed the UK economy is faring better than feared and GDP data on Friday showed growth was a little better than forecast in January at 0.3% against a forecast of 0.1%. There are some economic forecasters suggesting 3.7% growth this year.
So, what can we expect? I’m not expecting any significant announcements but I’m calling on him to reveal a solid plan for how he brings confidence and optimism back to the business sector.
Encouraging investment in the future
Encouraging business growth is the most sensible and effective long-term strategy for stimulating the economy and to do this he needs to address the uncertainty that they face. I suspect rather than immediate measures, we will hear more about his planned roadmap to encourage businesses to invest and expand over the coming years.
Attracting businesses to the UK through the existing Freeports developments may be on his agenda with how he intends to create new ‘investment zones’ in ‘under-performing’ areas of the UK to boost high growth industries.
Business tax changes
The main rate of corporation tax is set to rise to 25% from 1 April. It would be unrealistic to think that he may reverse this so it may be that the Chancellor will look to sweeten the impact on those businesses by announcing a boost to the capital allowances regime. It is also possible if trying to the UK’s attractiveness to foreign investors that he may announce a planned reduction to corporation tax over the next 5years providing at least some certainty that investors could work with as they plan forward.
There is some speculation that the Chancellor will announce a replacement to the Capital allowance super deduction which expires on 31 March this year as a way of encouraging business investment. It’s a drain on the purse strings to the tune of £11 bn a year but he will be keen to replace it with a scheme that will be welcomed by the business community.
The R&D tax relief is a valuable early source of funding for start-ups in areas such as the life sciences and technology sectors. While the increase in R&D tax relief for large businesses is welcome, the chancellor should reconsider his plans for SMEs as it threatens the viability of innovative businesses.
Continued Energy Support
The cost of energy support packages introduced by the Government have not cost the Government as much as they have expected due to falling wholesale energy prices. With the challenge reduced for many – businesses and homeowners alike – it is not expected that he would continue this support, but he may opt to continue to provide support to households through delaying the increase in the Energy Price Guarantee. He could equally divert the funds to target greater new business investment schemes.
Business is very much aware of the short supply of talent and this extends over many sectors. There are 6.6m people of working age who are not in employment or full-time education with only 25% of them seeking employment.
The Chancellor has already stated that he will introduce changes to lifetime pension limits and possibly annual pension contributions as a way of encouraging people back into the workplace – although there is some speculation this may be focussed on the NHS. He may also announce future plans to change National Insurance contributions and retraining schemes to support this goal.