From the despatch box, Jeremy Hunt presented his ‘budget for growth’, one that he says will remove ‘obstacles that stop businesses investing’, by tackling labour shortages that prevent them recruiting and by ‘breaking down barriers’ that stop people working.
Hunt pointed to an economy that was ‘on the right track’ and ‘proving the doubters wrong’ unveiling a forecast that the UK is set to avoid falling into a technical recession in 2023. The Chancellor also revealed via the OBR that the rate of inflation is also set to fall to 2.9% by the end of 2023.
Commenting on the Chancellor’s Spring Budget, NACFB Chair, Paul Goodman, said: “The UK is the only G7 economy which is still smaller than it was before the pandemic, even after growing 4% last year. With small business borrowing appetites set to decline throughout the remainder of the year there was little recognition of the continued high borrowing costs for enterprises and the barriers that remain in their attempts to access finance.”
“The NACFB welcomes the ability for businesses to deduct the cost of any eligible investment from their corporation tax bills straight away. We hope that ‘full expensing’ will increase business investment by the 3% projected but we were disappointed not to see more ambitious plans over the longer-term via greater incentivisation,” Paul shared.
Adding: “We continue to call for a full scope UK Industrial Strategy. A strategy that addresses systemic challenges faced by small UK businesses, one that restores an entrepreneurial culture and acts as a catalyst for investment in housing, manufacturing, and skills.”
An overview of key measures relevant to the NACFB community can be found below.
SME investment allowance increases to £1m
First up, and the Annual Investment Allowance for smaller businesses will now rise to £1 million, meaning 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits. Hunt outlined that every pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from its taxable profits. SME businesses will also be able to claim an ‘enhanced credit’ worth £27 for every £100 they spend if they spend 40% or more of their total expenditure on research and development.
‘Full expensing’ to reduce investment costs
The Chancellor also announced ‘full capital expensing’, which will enable businesses to deduct the cost of any eligible investment from their corporation tax bills straight away, rather than over several years. It is hoped that full expensing should make it more attractive for a company to invest in a new building or in new machinery. The OBR has said this will increase business investment by 3% annually. The measure will initially be in place for the next three years with the intention to make it permanent “as soon as we can responsibly do so”.
Corporation tax to increase to 25%
As planned, corporation tax for businesses will increase from 19% to 25% from next month. Firms which make a profit of more than £250,000 will pay 25% tax on their profits from April. The Chancellor outlined that only 10% of companies are set to pay the new full rate.
Hospitality sector boost for pubs
Speaking on the struggling hospitality sector, the Chancellor shared that he will introduce what he termed a ‘Brexit pub guarantee’ that will arrive from 1st April to make draught drinks in pubs 11p cheaper than supermarkets. Hunt said his “…cost of living measure concerns one of our other most treasured community institutions, the great British pub.”
UK Customs system to be simplified
The UK’s 363,000 international traders are set to benefit from a new ‘streamlined customs process’. The Chancellor unveiled plans to cut red tape and simplify paperwork involved in moving goods in and out of the country. The changes would give traders six additional days to submit forms after border crossings, reducing administrative burdens for business. They will now also need fewer authorisations and financial guarantees.
Pan-UK Investment Zones introduced
The Chancellor announced 12 new Investment Zones. They will be spread across the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales, and Northern Ireland.
Jobs boost in bid to get Britain working again
Central to the Chancellor’s statements was the bid to boost the UK workforce. A leaked headline measure saw 30 hours of free childcare for working parents in England expanded to cover one and two-year-olds. Provisions were announced for up to 50,000 places on a new voluntary employment scheme for disabled people, called Universal Support, alongside ‘skills boot camps’ to encourage over-50s who have left their jobs to return to the workplace.
Pensions lifetime allowance to be abolished
The Government also set out plans to increase the pensions annual tax-free allowance from £40,000 to £60,000 and will now abolish the Lifetime Allowance – the total amount workers can accumulate in their pension savings before paying extra tax – which was previously set at £1.07 million.
Energy Price Guarantee extended until the summer
The Chancellor confirmed that the support package for households will be maintained at current levels for another three months. This means the Energy Price Guarantee will remain at £2,500 per year until the end of July. Energy bills are expected to drop sharply in the second half of the year as the drop in gas prices is reflected in long-term contracts bought by suppliers.
£20bn of support for carbon capture
Measures to reduce the carbon emissions were also outlined. “I am allocating up to £20 billion of support for the early development of carbon, capture, usage and storage,” Hunt said. The measure is set to support up to 50,000 jobs, attract private sector investment and help capture 20-30 million tonnes of CO2 per year by 2030. The Climate Change Agreement scheme has been extended by two years to allow eligible businesses £60 million of tax relief on energy efficiency measures.
Government borrowing set to fall
Finally, the Spring Budget highlighted that underlying Government debt is forecast to be 92.4% of GDP next year, 93.7% in 2024-25; 94.6% in 2025-26, and 94.8% in 2026-27, before falling to 94.6% in 2027-28. The deficit is now projected to fall in each year of the entire OBR forecast period.
Prior to the Spring Budget, the NACFB shared its very own wish list of measures which can be found online here.