Spring Budget Update – A Push for Productivity

The general expectation coming into this budget was for further tax hikes. After all, the Autumn message was very clear – whilst the Government are being supportive to households via the energy price guarantee, that outlay needs to be paid for, and with the economy slowing towards a likely recession, this budget was not expected to be a giveaway.

What’s changed since Autumn then? Well, first, the message. Back then it was all about looking for stability after Liz Truss and her chancellor were viewed globally as being naïve with the UK’s economic policy. Quick actions followed which stabilised the pound and settled some nerves around the rising cost of government debt, exacerbated through the plans Truss had set out.

In addition, the expected cost of the Energy Price Guarantee has been considerably less than was first anticipated, thanks to a substantial fall in the price of wholesale energy. Therefore, the Government required less borrowing than was forecast, putting finances in a better place. The economy has also been more resilient than most predicted, and yesterday the Office for Budget Responsibility updated its forecasts to say the UK will narrowly miss a recession this year. All-in, compared to where they expected to be, the Government has more room to be supportive than was estimated last Autumn.

Now all that said, it’s worth remembering that there are tax-rises coming in April. The Government’s previously announced Corporation Tax hike from 19% to 25% (exceptions for small businesses) has been confirmed, income tax brackets are frozen, and the Capital Gains Tax allowance will move from £12,300, to £6,000 in 2023/24. This will help bring in much needed capital into the Treasury. The UK now has the highest rate of personal tax in over 70 years, and overall, the UK’s tax take as a percentage of economic production, is one of the highest in Europe. This certainly highlights the growing importance of tax planning, using personal allowances and tax breaks where we can.

So, given this backdrop, with taxes high, and growth low, the Government are quite correct, they desperately need to help stimulate economic growth. In pursuit of this, the Government announced a raft of measures aimed at improving productivity by encouraging people back into the workforce and increasing investment. Some highlights from the budget are noted below:

• Childcare support will be extended so that parents of children aged 9 months and up can get access to 30 hours a week of free childcare in term time, provided both parents work at least 16 hours a week. This will be phased in across 2023 and 2024, and the estimate is that it will enable 11 million more people; mainly women to work.

• The pension annual allowance will increase from £40,000 to £60,000 per annum from April 6^th 2023

• In addition, from the same date, the Lifetime Allowance tax charge (LTA) on pension funds which was previously set at £1,073,100 has been abolished completely.  Interestingly the Labour government have already announced that they will reverse this at the next election should they win.  Pension planning should not in our view be used as a political ping pong ball, and although this is a clear benefit to those with sizeable pension assets, the move was aimed primarily at keeping doctors and other high earners working longer. Brexit in particular, plus pension tax charges have had a significant impact on all levels of the workforce, including those in the NHS so incentivisation is needed to retain staff.

• Although Corporation Tax will rise, Mr Hunt announced extensions to investment tax-breaks as well as an ‘enhanced credit’ for research-intensive businesses.

• 12 investment zones will also be created across the UK, centred on levelling up areas outside of London to promote job growth.

• The Energy Price Guarantee will also be extended at the current level, £2,500, rather than increasing to the £3,000 that had been planned.

I think overall it was essentially an uninspiring budget. The push for growth feels counterintuitive with taxes rising. The more productive we are the more we will pay in tax. Hence the unwanted 70 year rise in tax revenue as a percentage of UK earnings.

To me, the best news was the additional £200 million for pothole repairs However, based on my journey to work as a sample, that funding will work out as something well below £1 per hole.