Budget 2023: Muted welcome from business as many of Hunt's measures fail to hit the mark
Those taking industrial action on Jeremy Hunt’s big day included teachers, university lecturers, civil servants, junior doctors, London Underground drivers and BBC journalists. The unrest has intensified in recent months as inflation remains stubbornly sticky, easing from October’s 41-year peak of 11.1 per cent, but only as far as around 10 per cent. In one of the Budget’s surprise projections, the Office for Budget Responsibility predicts that rate will fall to 2.9 per cent by the end of this year. It also reckons that the UK economy will avoid a technical recession - two consecutive quarters of decline - in 2023, though it is still expected to contract by 0.2 per cent, before gathering pace next year.
Sharply falling inflation and economic stability will reassure businesses that have been hit by a double whammy of soaring costs and cash-strapped consumers reining in their spending. The Chancellor’s “Budget for growth” also brought welcome news for companies focused on artificial intelligence (AI), fresh tax cuts for research and development and businesses investing in IT and machinery, the creation of a dozen “investment zones” across the UK, including one in Scotland, and measures to persuade millions of “economically inactive” people into work.
Business leaders welcomed many of the Chancellor’s announcements, but described Hunt’s first full Budget as a missed opportunity in other regards. Shevaun Haviland, director general of the British Chambers of Commerce, described the plans for full capital expensing as a “step in a right direction” to offset the hike in corporation tax, but said the “jury is out” on how much it will help businesses compared to the super deduction scheme. She added: “Almost half of businesses have told us they will struggle to pay their energy bills from April, and they cannot invest when they are fighting to survive. There is little in [this] announcement that will provide comfort to these firms. The government also failed to reform business rates which we have repeatedly called for. If the UK’s innovative growth industries are to remain competitive on the world stage, then government must shift the dial further on investment, both within the UK and from overseas.”
Martin McTague, national chair of the Federation of Small Businesses (FSB), said “small business strivers” had been snubbed by a “meagre” spring Budget, adding: “While there are some positive words, the government’s lack of support for small firms in critical areas is glaring. The Chancellor stressed that the UK is one of the best places to do business and we’ll avoid a technical recession this year - but small businesses need more ambition and more focus. Action is what counts if we are to reverse the 500,000 small businesses lost over the last two years.”
The Chancellor insisted that even after the corporation tax rise this April, the UK would have the lowest headline rate in the G7, pointing out that only 10 per cent of companies would pay the full 25 per cent levy. Hunt also laid out measures the UK government had already taken to encourage business investment. Smaller firms have seen the annual investment allowance increase to £1 million, meaning 99 per cent of all businesses can deduct the full value of all their investment from that year’s taxable profits.
Kitty Ussher, chief economist at the Institute of Directors, said: “Our economy has been held back in recent years because people running businesses have felt nervous of committing to investment when the climate is so uncertain. The introduction of 100 per cent full expensing for the next three years is therefore very welcome and we urge it to be continued thereafter. It simplifies the system, removes confusion about whether digital investments count as capital and crucially incentivises investment by reducing the up-front cashflow risk. Having said that, it is disappointing that the Chancellor has chosen to target R&D tax credits to some parts of the economy. While good news for the sectors concerned, it could lead to less innovation across the economy more widely.”
Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, said the Chancellor’s “sketch of a plan for growth has turned into a blueprint” with detail on incentives aimed at increasing investment in the UK. “Although there will be huge disappointment that he hasn’t budged on the jump in corporation tax to 25 per cent, the full capital expensing scheme will offer some relief,” she added. “It means that every pound a company invests in equipment will be offset but it’s still not as generous as the super-allowance which it replaces.”
Cameron Stott, head of Scotland at property consultancy JLL, welcomed the Chancellor’s commitment of £320m of extra funding for the Scottish Government, delivered through the Barnett formula. He said: “It’s also encouraging to see a recommitment to investment zones in Scotland, especially given the strength of the country’s existing innovation and knowledge hubs, which are linked to our world-class universities which in turn impact every sector of the economy. The Scottish property market continues to lack a quality pipeline of sustainable commercial space and residential accommodation to fulfil demand. As the Chancellor looks to stabilise and potentially return the economy to growth later in the year as inflation subsides, firms in Scotland will be keen to see the Chancellor do more to attract investment to spur regeneration and new-build activity alike.”
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