Spring Budget 2023

By Hugh Austin

Castlefield's Hugh Austin summarises Chancellor Jeremy Hunt's Spring 2023 budget and outlines some of the key points investors should be aware of. 


The Chancellor’s Autumn Statement and the accompanying Office for Budget Responsibility’s (OBR) forecast set a gloomy outlook for the future of the UK economy: inflation was projected to peak at a 40-year high of 11%, living standards were expected to drop year on year for the next two years and Government borrowing was forecast to increase by over £100 billion in the following 18-months.

Since this statement, economic activity within the UK has been a bit of a mixed bag. In January, the UK government saw a surprise surplus in its finances, boosted by the highest self-assessed income tax receipts since records began in 1999. This led to a net borrowing of -£5.4bn in January. Despite the surprise figures, this surplus was still smaller compared to the same month in 2022 (£7.1bn).

Speaking on the 1st of March, Bank of England Boss Andrew Bailey stated that the forecasted recession for the UK may not be as long or as severe as thought. Continued interest rate hikes are not unlikely, however, with Bailey confirming that a lack of action now will only mean more action down the line. In February the Bank of England raised interest rates to 4% and the next decision will be made on the 23rd of March. Analysts expect that interest rates will peak at 4.5% in the summer. 

...the forecasted recession for the UK may not be as long or as severe as thought

Industrial action has continued into 2023, with large doctor and teaching strikes in the week leading up to the Spring Budget. Earlier in the month a new Brexit deal for Northern Ireland was revealed called the Windsor Framework, which has since received backing from major businesses.

The 2023 Spring Budget is being labelled the ‘back to work’ budget, with a clear focus on enabling and encouraging people back into work. There are currently around 1.1 million job vacancies in the UK and nearly 9 million (over 7 million excluding students) labelled as ‘economically inactive’, that are both unemployed and not looking for work. To address this, pension reforms, boosts in childcare and continued energy support were expected to be key areas of emphasis for Jeremy Hunt’s budget.

 UK in surprise boost after record tax payments in January - BBC News

Strikes: Who is taking industrial action in 2023 and when? | UK News | Sky News

Bank of England boss says UK interest rates may rise further - BBC News

OBR forecast

In the Autumn Statement, Mr Hunt announced that the UK economy was in a recession. Fast forward five months and the Chancellor is now announcing that the UK is expected to avoid a technical recession this year, according to the latest OBR forecast.

In addition to this, the OBR has reported that inflation will fall from 10.7% to 2.9% by the end of 2023, a reduction in inflation much larger than the target of halving it that Jeremy Hunt announced in October.

That said, GDP is expected to fall by 0.2% on an annual basis over 2023 signalling an expectation of ‘stagflation’ this year. Looking ahead, growth of 1.8% is forecast for next year and 2.5% in 2025. The OBR notes that the recovery will be driven by private consumption as household incomes rise.

On underlying debt, the expectation is for this to fall year on year until 2027/28 where it will fall to 94.6% of GDP, meeting the government’s fiscal target. This marks a significant improvement in borrowing since the Autumn Statement 2022.

Budget Headlines

As expected, a big focus of this budget was encouraging and enabling people back to work. Addressing this, the chancellor’s budget focused on the following three shortfalls:

  • A shortfall in the support for the long-term sick & those with disabilities,
  • The incentives and support for those aged over 50 to remain in, or re-join, the workforce, and
  • The barriers created by childcare costs

Tackling the first of these, Jeremy Hunt announced a reform of disability benefits, which he heralded as the biggest change to the welfare system in the past ten years. This includes removing the Work Capability Assessment, thereby supporting claimants to try work without fear of losing their financial support, and a new voluntary scheme for disabled people and those with health conditions called Universal Support.

The 2023 Spring Budget is being labelled the ‘back to work’ budget, with a clear focus on enabling and encouraging people back into work.

Speaking on those aged over 50, the Mr Hunt revealed a 3-step plan attempting to make it easier for those who wish to, to work longer:

  1. The first step is an expansion of the midlife MOT. There will be an enhanced midlife MOT tool and an expansion of DWP’s in person midlife MOTs for 50+ Universal Credit claimants, aiming to reach 40,000 per year.
  2. The next step is a new ‘Returnerships’ apprenticeship targeted at the over 50s. This scheme will aim to refine existing skills programmes to make them more accessible to older workers.
  3. The final step is the predicted pension reforms. The annual allowance (the limit on how much a person can pay into their pension each year whilst receiving tax relief) will increase by 50%, from £40,000 to £60,000. In addition to this and taking a much more radical approach than anticipated, the Lifetime Allowance will be abolished. Prior to the budget, it was rumoured that this allowance would increase from £1.073m to £1.8m. Slipping under the radar slightly, is that the Money Purchase Annual Allowance (the total tax-relieved pension savings a person can make once they’ve flexibly accessed benefits from their pension) will increase from £4,000 to £10,000.

On the point of childcare, the headline statement is the expansion of the 30 hours of free childcare to every child over 9 months where both parents work a minimum of 16 hours per week. This support will be phased in between April this year to September 2025. Childcare costs of parents on Universal Credit moving into work or increasing their hours will be paid upfront, rather than in arears, and the maximum they can claim will increase by around 50%.

The following cost of living measures are also covered in the budget:

  • The energy price guarantee of £2,500 will remain for the next three months, after which point the planned increase to a level of £3,000 per year will be implemented.
  • The prices of pre-payment meters will be brought in line, removing the premium paid so that they are comparable to direct debit charges.
  • Fuel duty will be frozen for the next 12 months and the 5p cut will be maintained.
  • Support for British pubs through a ‘Brexit pubs guarantee’, freezing the duty on draft pints.
  • A £63m fund to support public pools and keep leisure centres afloat.

On business and innovation, Hunt confirmed that corporation tax will increase from 19% to 25% for firms which make a profit over £250,000 as expected.

To support and encourage investment into business, the following were announced:

  • Small business Annual Investment Allowance increases to £1 million, meaning that 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits.
  • The introduction of a new policy of full capital expensing for the next 3 years. This policy means that every pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits. This will result in £9 billion a year of tax cuts and OBR expects this to increase business investment by 3% every year whilst in place.
  • Small or medium-sized businesses will be able to claim a credit worth £27 for every £100 they spend if they spend 40% or more of their total expenditure on Research and Development.

Finally, on the topic of green industries, Hunt announced a £20 billion investment into Carbon Capture and Storage. This will create up to 50,000 jobs and help capture 20-30 million tonnes of C02 per year by 2030. Hunt also revealed that nuclear power is to be classed as environmentally sustainable, allowing it to access the same investment incentives as renewable energy. 

Spring Budget 2023 (publishing.service.gov.uk)

In this accompanying piece 'How will the changes to the tax system affect your investments?' my colleague, Matt Ralph examines the effect the 2023 Spring Budget may have on the Capital Gains Tax and dividend allowances for thoughtful investors.

Written by Hugh Austin