Budget highlights

I have to confess to having had fairly low expectations of this budget, as we had already been told that corporation tax was going up and R&D relief for small and medium-sized companies was going down. However, the chancellor was keen to tell us that the OBR predicts that the UK will not after all be heading into a recession this year and is predicted to begin to grow from 2024 onwards.  Inflation is predicted to fall to 2.9% by the end of 2023, and that should be welcome news for both individuals and businesses.

Mr Hunt delivered his growth message under the headings of four “E”s, being Enterprise, Employment, Education and Everywhere, but from Pensions to Potholes and Business to Beer, did he announce anything for you?

For Individuals

A lot of measures announced were designed to help people back into the workplace. The one that hit the headlines before the budget was the possible changes to the lifetime allowance for tax-relieved pension savings in a registered pension fund. The chancellor went one better than the predicted rise in the lifetime allowance by abolishing it altogether. He said that the limit on tax-free pension savings was encouraging highly skilled workers to retire earlier than necessary and wished to reverse this trend. In addition, the annual allowance for tax-relieved pension savings which currently stands at £40,000 will rise to £60,000 from April 2023, and the amount that someone who has already flexibly accessed their defined contribution pension savings will be able to contribute will rise from £4,000 per year to £10,000. This last measure is designed to tempt those who have already retired back into work.

The chancellor would also like to see more people with young children able to join the job market. He plans to facilitate this by increases to childcare.  The headline announcement that working parents would be able to access 30 hours of free childcare a week for children over 9 months was greeted with excitement in the house followed by obvious disappointment when it became clear that the full benefits of this will not be available until September 2025. The first people to benefit will be working parents with children who are 2 years old in April 2024. They will be able to access 15 hours of free childcare a week.  From September 2024 this be extended to working parents of children aged 9 months to 3 years.

Of course, that only helps if the free childcare places are actually available. To address this the government will “substantially uplift” the hourly rate paid to free-childcare providers, and also change the staff to child ratios for 2-year-olds to 1:5 (formerly 1:4). Finally, if you fancy a move into child-care, new child-minders who register with a child-minder agency will receive a start-up grant of £1,200. Those who register directly with Ofsted will receive £600.

If potholes are more your thing, you may be interested to hear that the chancellor has committed an additional £200 million to deal with these.  As he had already apparently committed £500 million to this, and there seems to have been little progress, is the money going into a pothole or a black hole?

For Businesses

There was little hope as the budget approached that there would be any reversal of the decision to raise the main rate of corporation tax to 25% and indeed we were right.  However, in an effort to encourage investment and stimulate growth, the chancellor announced the full capital expensing of certain plant and machinery.  This means that a business will be able to deduct 100% of the cost of qualifying items of plant and machinery from their taxable profits.  The term plant and machinery is a tax term and is wider than it sounds, as it also includes IT equipment and furniture and fittings such as desks and chairs.  This measure is currently set for three years, but if it produces the growth in the economy that the government hopes, it may be made permanent.

For purchases which would normally receive allowances through the special rate pool, which include electrical systems, cold water systems, heating and ventilation, the current 50% first-year allowance will be extended. In addition, the annual investment allowance of £1 million will also remain in place, so full relief could be available by using that against special rate pool additions.

In the Autumn statement, it was announced that enhanced R&D tax relief for SMEs would be reduced from 130% to 86%, with the repayable credit being reduced from 14.5% to 10%.  This was coupled with an increase in the RDEC scheme for larger companies from 13% to 20%. Today, the chancellor announced that for SMEs which are “R&D intensive” i.e. their qualifying R&D expenditure is more than 40% of their total expenditure, the 14.5% repayable credit will still be available.  Overall of course they have still lost out, because the enhancement will only be 86% rather than 130%, but the chancellor managed to make it sound like a positive!

If none of this is making your day, you may wish to head off to the pub.  However, if you can wait until August, you may be able to enjoy the trip more, in the knowledge that you could be saving money as well as supporting your local, because the draught relief will be increased so that beers and ciders on draught in the pub will suffer 11p less duty than your bottles and tins from the supermarket.