The chancellor revealed his Spring Budget in March with businesses and households eagerly awaiting the announcements alongside forecasts from the Office for Budget Responsibility. ICAEW’s Budget Representation sent to HM Treasury in January outlined key asks, reiterated by Michael Izza’s letter to the chancellor in February.
Key policy announcements included a focus on growth and labour market participation, particularly to address childcare issues. The full expensing investment incentive provided more certainty, giving business much-needed confidence to invest, set against the backdrop of a pending rise in the corporation tax rate.
Generally, the announcements were welcomed by ICAEW members, with the caveat that the ‘devil is in the detail’. ICAEW’s Tax Faculty summarised the tax changes designed to drive investment and growth.
Speaking to ICAEW members from across the UK following the Budget, feedback focused on four specific areas:
With an announcement for households but nothing for business, the issue of higher energy costs continued to loom large. Although the cost of energy has fallen in recent months, the switch from a price cap to a discount scheme from 1 April creates an environment of increased uncertainty.
It prompted one member to describe it as a “potential cliff face, with companies continuing to worry about their business models surviving through the summer and this winter”. Continuing the theme of ‘enterprise, employment, education and everywhere’ – the pillars of Jeremy Hunt’s vision for long-term prosperity in the UK – a call for a fifth ‘E’ for energy was made primarily by members in some of the more energy-intensive sectors, including manufacturing.
The rise in energy prices has seen an acceleration of interest in sustainable supply, with companies exploring solar, heat pumps and other technologies as they look to contain higher costs. Although access to finance and a lack of incentives are regularly highlighted as barriers to adoption, incremental gains can be made by making small steps starting with behavioural changes.
On 23 March we debated this topic at an event at Chartered Accountants’ Hall: Energy and the affordability of net zero, now available to watch on demand, which presented invaluable practical advice. Further information and advice on ways to mitigate rising energy costs are available on ICAEW’s energy crisis hub.
Alongside the cost of energy, challenges concerning access to skills, staff retention and recruitment have been cited by members as the most pressing issues in recent months. Initiatives relating to childcare outlined in the Budget – notably the phased extension of free childcare to working parents – were applauded, but members highlighted a missed opportunity to address skills gaps.
Skills are a critical supply-side issue, but with nothing specifically announced to address these gaps or a review of the Apprenticeship Levy, many businesses remain fearful as to their ability to secure the talent they need to drive their businesses forward.
‘A return to a sense of industrial strategy’, as it was described by one manufacturing sector member, was seen as a positive step across the regions. A revitalisation of Britain’s nuclear power industry as part of the UK’s energy security strategy under the banner of Great British Nuclear and the unveiling of 12 investment zones were key announcements made.
Full capital expensing – allowing companies to claim 100% capital allowances on qualifying plant and machinery investments – was in part a response to the end of the super-deduction and the rise in corporation tax. Initially the scheme will run from April 2023 until the end of March 2026, offering a level of stability that businesses crave. However, the chancellor has already hinted at a desire to make this permanent. With memories of the Autumn Statement still prominent, several members took the opportunity to raise the issue of incentives for smaller businesses in relation to R&D.
On investment zones, the potential for a postcode lottery was noted, which could contradict the ‘everywhere’ pillar to level up the UK outside of London. Regional differences in confidence and prosperity are highlighted through ICAEW’s quarterly Business Confidence Monitor (BCM). Members called for the detail of investment zones to be clearly thought through with clarity over target and impact.
Members were generally positive on capital expensing but less so on the removal of the pensions cap. One member described the latter as ‘quite unnecessary when they could have just doubled it’, a sentiment reiterated by others.
ICAEW had called for the creation of a taskforce to address HMRC service levels and clear a growing backlog of queries. Disappointingly there was no mention of this in the Budget.
Interestingly, several members raised concerns over the attractiveness of the UK as a place to invest, calling for a long-term strategy and consistent policy on taxation. The increase in corporation tax and reduction in R&D benefit were specifically mentioned as being unhelpful and likely to discourage international inward investment.
The chancellor also mentioned in passing that the US Inflation Reduction Act (along with the European Union’s response) would be looked at as part of the Autumn Statement. Investment in green technology is seen as a huge opportunity for the UK. Innovation and ideas require the right environment to flourish, which makes autumn feel like a long way off.
Following on from the Spring Budget, with the surprise announcement of 10.4% inflation and the Bank of England raising the benchmark interest rate to 4.25%, much uncertainty remains.
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- Action required by those holding certificates of tax deposit
- ICAEW comments on opportunities and barriers to decarbonising UK energy production
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