Budget 2023: Our Reaction

Today’s Spring Budget speech was a rowdy affair, with similar vein as any we’ve seen since they were first televised in 1990 when John Major delivered his speech to the Commons.

Fast forward to 2023, and chancellor Jeremy Hunt delivered his and the PM’s ‘Budget for Growth’.

His opening remarks were encouraging, confirming that the UK will avoid a 2023 recession, but only just. Despite the economy set to shrink by 0.2%, it will escape the usual ‘recessive’ definition whereby growth contracts for two consecutive quarters.

Mr Hunt followed with the OBR’s prediction – with its report issued today – that, in part due to today’s Budget announcement – inflation will fall from 10.7% in the last quarter of 2022 to 2.9% by the end of 2023. Plus, the Chancellor assured us – albeit quite vaguely – that the UK is meeting its debt priority, which as a percentage of GDP, is less than the USA, Canada, France, Italy and Japan.

However, it’s worth noting the following comments from Richard Hughes, chair of the OBR: “Inflation will hover around 0% in the middle of the decade and won’t return to 2% until 2028, that Interest rates will peak at 4.3% later this year before falling back to 3%, that real household disposal income per person will fall by 6% this financial year and next, and this will represent the largest two-year fall in living standards since records began in the 1950s.”

Upon closer inspection, the 2023 Spring Budget reveals significant policy shift and consultation – the concise detail of which and its impact we may have to wait for. However, the headline measures announced today include:

Corporate Tax

  • No change to the increase in the rate of Corporation Tax from 1 April 2023 from 19% to 25%.
  • Capital Allowances: With the cessation of the “Super Deduction” relief from 1 April 2023, a “full expensing” relief is to be introduced, allowing companies investing in plant and machinery on or after 1 April 2023 to claim relief for capital expenditure on plant and machinery in the year the expenditure is incurred.
  • For qualifying expenditure incurred on or after 1 April 2023 but before 1 April 2026, companies can claim a 100% first-year allowance for main rate expenditure – known as “full expensing”; and, a 50% first-year allowance for special rate expenditure. This appears to be a somewhat rebrand of the Annual Investment Allowance (AIA), with the Chancellor explaining that 99% of businesses can already deduct the full value of their investment from that year’s taxable profits. We just seem to be losing the annual spend limit of £1million.
  • R&D: The Chancellor confirmed the consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes will be introduced, but no date has yet been confirmed. However, the option of implementing this from April 2024 remains in place. Draft legislation is expected this summer. It has also been announced that for SMEs with qualifying expenditure that constitutes at least 40% of total expenditure, the payable credit available for loss making companies will remain at 14.5% instead of the planned 10% for all other SMEs. The plan to restrict the inclusion of overseas sub-contractors as qualifying expenditure will now be delayed until 1 April 2024, allowing for a review of the interaction between this and the merged schemes.
  • Audio-visual tax reliefs: Film, TV and video games tax reliefs are to be reformed, becoming expenditure credits instead of additional deductions, and effective from April 2024. The new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV will be eligible for a credit rate of 34%, animation and children’s TV 39%, and video games a rate of 34%.

AI and machine learning

Interestingly, the Chancellor gave plenty of airtime to Artificial Intelligence, which is clearly viewed by government as a key component in the UK’s future. In doing so, several measures were introduced to encourage the development of AI and machine learning:

  • £900million investment in an AI “exascale” supercomputer and new AI Research Resource, with initial investments starting this year.
  • A £1 million prize every year for the next 10 years to researchers that drive progress in critical areas of AI.
  • The Quantum Strategy sets out a new and ambitious quantum research and innovation programme, investing more than £2.5bn over the next 10 years.
  • The government has allocated £100million in funding for the Innovation Accelerator programme to 26 transformative R&D projects.
  • The potential for enhanced R&D relief available subject to meeting the 40% eligible spend criteria.

Fuel duty frozen, again

Fuel duty is a tax motorists pay when buying fuel such as petrol and diesel. A scheduled rise would have led to a 12p per litre rise in petrol and diesel prices, but it has been frozen again. In fact, a 5p cut will continue for another year. All of this is likely to cost the Treasury c.£6bn.

Cigarettes and Alcohol Duties

The Chancellor made a big deal about the increase in Draught Relief, effectively allowing a reduction in the duty paid on draught products.

However, despite the better deal on draught beers, closer reading of the Treasury detail makes it clear that the duty on alcohol will rise at the start of August when a new system for calculating taxes on alcohol is introduced.

Tobacco duty will increase by 2% above inflation and 6% above inflation for hand-rolling tobacco.

Personal Tax

With effect from 6 April 2023, the lifetime allowance of £1.07m has been abolished. This is the maximum amount of pension savings an individual can build up over their career without having to pay an additional charge.

The scrapping of the limit is to encourage higher earners to stay in employment for longer and to be able to avoid their pension contributions being heavily taxed.

The Chancellor seemed to imply that lifting the lifetime limit is aimed at NHS consultants. However, it will be beneficial to many more taxpayers.

The annual pension allowance of £40,000 has also been increased to £60,000.


The Chancellor announced the 30 hours of free childcare that applies to 3- and 4-year-old children will now be extended to all children over the age of nine months.

To manage the stock of nursery places, the new scheme will be phased in from April 2024, coming fully into effect by September 2025, which means that it won’t quite be in effect soon enough for many parents with children just about to turn two.

As always, should you wish to discuss the above in further detail, contact your local Champion office.