Inflation to fall to 2.9% by the end of this year
Chancellor Jeremy Hunt said the British economy is “proving the doubters wrong” and will avoid recession, as he delivered his first full budget Spring Statement 2023 to Parliament today.[1]
Despite continuing global instability, the Office for Budget Responsibility (OBR) reported that inflation in the UK would fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023. The Chancellor credits part of the reduction in inflation to ‘measures he is taking today’.[1]
This includes £94bn spent on energy support for households and more than £3,300 of cost-of-living help for every household in the country. The chancellor said the government’s plan for the economy was “working” as he announced what he called a “budget for growth”.[2]
Spring Statement 2023: Energy bills capped at £2,500 for average household until June
The Chancellor has said that the energy price guarantee, which caps average household bills at £2,500, will be extended at its current level from April to June 2023.
This will mean that average bills will be capped at £2,500 a year until June, rather than increasing to £3,000 next month as planned.
The Treasury U-turn is expected to cost the Government around £3 billion.
Government support has saved the typical family £1,300 since October last year and has stopped the average household energy bill from hitting £4,279 a year over the winter.[3]
30 hours of free childcare a week for every child over the age of nine months
The Chancellor has also announced that he will extend free childcare provision to 30 hours a week from 15 to get ‘one million women back to work’.
He said, ‘I today announce that in eligible households where all adults are working at least 16 hours, we will introduce 30 hours of free childcare not just for three- and four-year-olds, but for every single child over the age of nine months. The 30 hours offer will now start from the moment maternity or paternity leave ends’.
‘It is a package worth on average £6,500 every year for a family with a two-year-old child using 35 hours of childcare every week and reduces their childcare costs by nearly 60%. Because it is such a large reform, we will introduce it in stages to ensure there is enough supply in the market.
He continued, ‘Working parents of two-year-olds will be able to access 15 hours of free care from April 2024, helping around half a million parents. From September 2024, that 15 hours will be extended to all children from 9 months up, meaning a total of nearly one million parents will be eligible. And from September 2025 every single working parent of under 5s will have access to 30 hours free childcare per week’.[4]
Spring Statement 2023: Lifetime Allowance Tax to be removed to retain GP’s
The Lifetime Allowance charge will be removed before being abolished altogether, ‘removing barriers to remaining in work and simplifying the tax system by taking thousands out of the complexity of pension tax’.
The Chancellor said that this formed part of a ‘comprehensive plan to help people extend their working lives’. The Annual Allowance will be increased from £40,000 to £60,000, in order to ‘incentivise highly skilled workers to remain in the labour market.’
He said that as a result of the pensions tax measures announced today, an estimated 80% of NHS doctors will not receive a tax charge with respect to accruals under the 2015 NHS career average scheme.
The increase in question could potentially benefit millions of individuals, especially those employed in the public sector, with a specific emphasis on doctors who have opted for early retirement or reduced working hours due to pension tax considerations.[5]
Fuel duty frozen for another 12 months
In the Spring Statement 2023, Chancellor Jeremy Hunt announced that the 5p fuel duty reduction, originally introduced by former Chancellor Rishi Sunak, will be extended for another 12 months.
Sunak had temporarily cut the fuel duty rate from 57.95p per litre to 52.95p in order to prevent pump prices from increasing. The cut was set to expire later this month, which would have resulted in a 5p increase in petrol and diesel prices. However, the Chancellor confirmed in the House of Commons that the duty reduction will continue for another year, bringing relief to drivers.
Additionally, he said that fuel duty will be frozen for the 13th consecutive year, providing drivers with an annual saving of £100. [6]
‘Full Expensing’ policy to be introduced for the next three years
The move represents an effective £9bn a year corporation tax cut for UK businesses.
Small businesses can now deduct the full amount of money invested in IT equipment from their taxable profits thanks to the introduction of “full expensing” for the next three years.
According to the Chancellor, this policy will become permanent when the government is financially capable of doing so, and the UK will be the only European country to offer such a benefit.
‘He said, ‘The impact on the economy will be huge. The Office for Budget Responsibility says it will increase business investment by 3% every year it is in place’[7]
Spring Statement 2023: Corporation Tax to rise from 19% to 25% in April
In the Spring Statement 2023, The Chancellor announced that Corporation Tax will rise from 19% to 25% in April 2023.
Hunt re-confirmed that the UK will still have the lowest headline rate in the G7 and added that a 19% rate “did not incentivise investment” and would cause less capital investment and lower productivity if left untouched.
He said, ‘I want us to have the most pro-business tax regime anywhere.’ And that ‘We remain vigilant and will not hesitate to take whatever steps are necessary to ensure economic stability.’
He added, ‘This is prosperity with purpose.’[7]
£1.8 billion package of support to help 20,000 cutting-edge companies
As part of a broader set of plans to boost the UK’s technology sector, the Chancellor said that the government plans to introduce tax incentives for UK-based small and medium-sized businesses (SMBs).
This move will see qualifying firms spending 40% or more of their total expenditure on research & development being able to claim a credit worth £27 on every £100 spent.
He said, ‘This is a £1.8 billion package of support helping 20,000 cutting-edge companies, who day-by-day are turning Britain into a science superpower.’[8]
For a complete overview of everything covered in today’s Spring Statement 2023 click here – Spring Budget 2023 or if you would like to read the speech in full you can find it here – Spring Budget 2023 Speech
