21 March 2023 – On Wednesday the Chancellor has delivered his first spring budget, which he also called the “back-to-work budget”, indicating what his main focus is.
In the weeks leading up to the spring budget, Jeremy Hunt has emphasised that economic growth will be the cornerstone of the measures he will announce. A main focus of the announcement was to get more people into work.
Given the labour shortage the UK has experienced since the pandemic, many in the business industry have called on the Governement to address this as a matter of urgency. And it seems the Chancellor has listened.
Here is a low down of what the measures he announced mean for the 5.5 million small businesses.
UK Economy Better Off Than Expected
The spring budget was accompanied by the economic forecast from the Office for Budget Responsibility (OBR) to provide the state of affairs of the UK economy.
The biggest headline in the report was that the UK’s economy is expected to perform better than initially predicted. The OBR anticipates that the UK’s GDP will be higher at the end of the forecast than the body previously expected.
According to the OBR this is mostly due to lower energy prices. But it has also revised up its forecast for inward migration to match the most recent figures. Because more immigration means a bigger economy, this has had a positive impact on the UK’s GDP figures for 2023.
The OBR also confirmed that the UK has narrowly avoided a recession at the end of 2022. Government borrowing in 2022/23 was now also lower than predicted last November. Rather than the predicted £177bn, the Government only borrowed £152bn.
But the UK economy is still to be expected to shrink this year, albeit not by as much as predicted last year. And UK households will still see the largest fall in living standards since the 1950s.
According to the OBR’s report, real household disposable incomes are expected to fall by 6% between 2021/22 and 2023/24. Revised down by only 1% from the forecast back in November.
What Was In The Spring Budget For Small Businesses?
Jeremy Hunt has announced enhanced R&D tax credits for research in the areas of artificial intelligence and fintech. The £500 million per year package aims at boosting innovation and driving business investment in these specific areas.
Businesses in most high-tech sectors, such as artificial intelligence, will continue to receive 27% enhanced tax credit if they invest up to 40% of their spending in R&D. According to the Government, 8,000 businesses could benefit from this tax relief.
Starting from April, businesses can deduct 100% of all plant and machinery investment pending from their tax bill. This tax allowance will last for three years.
The creative sectors will receive tax reliefs to ensure they can withstand the economic pressures and continue to produce world-class productions.
Duty on draught products in pubs will be 11p lower than in supermarkets from 1 August, which will be a welcome measure for the hard-hit pub industry.
Another announcement will please small businesses. The annual investment allowance for small businesses will increase to £1 million. This means that pretty much all UK businesses (99%) will be able to deduct the full amount of all their investments from their tax bill.
Fuel duty, which was set to rise in the coming tax year, won’t. The 5p per litre tax cut will continue for another year. Furthermore, fuel duty will also be frozen.
In terms of getting more economically inactive people into work, Jeremey Hunt announced three main measures:
- More support with childcare for parents of young children
- Pension reforms to encourage people over 50 back into work
- Reform of disability benefits
The Chancellor said these measures will ensure that barriers for parents of young children, people who have retired early and disabled and long-term sick people to return to work are reduced.
What Was Missing From The Budget
The most glaring absence from the spring budget was any announcement about the energy bill support scheme for businesses.
While the energy price guarantee for households will continue at the same level for another three months, there was no mention about the scheme for businesses.
This omition has been heavily criticised by many business insiders, as it leaves hundreds of thousands of small businesses worse off.
The Treasury’s failure to extend the Energy Bill Relief Scheme (EBRS) is a disappointing turn of events for SMEs. We already knew from the FSB that over 350,000 SMEs stood to downsize, restructure or close entirely if their energy bills reverted to the higher rates in April.Joseph Calnan, Manager of Corporate FX Dealing at Moneycorp
There was also no announcement regarding business rates, despite the Chancellor having said on previous occasions that these would be reviewed.
Corporation tax will rise from 19% to 25% from April, despite calls for this tax rise to be abolished. The Living Wage will also go up as previously announced. This rise has to be paid for by the individual businesses.
While the spring budget includes some positive news for small businesses, the things that were missing will make the year ahead a challenging one for many.