What Can We Expect from the 2023 Spring Budget?

Chancellor Jeremy Hunt faces some difficult choices as he prepares to deliver his Spring budget next week, dealing with a sluggish labour market, public sector strikes, and the UK’s ongoing cost of living crisis.

According to the Resolution Foundation, the UK economy is in better shape than previously thought. This means that the Chancellor may not need to borrow as much as previously thought. Plans to help with the cost of living, pay raises for the public sector, economic growth plans, tax changes, and investments in health care could all be discussed at the Spring budget.

Here are just a few of the announcements we anticipate the government will make in the upcoming 2023 UK Budget, which will be held on March 15th.

Fuel and Energy

Fuel duty is set to rise by 12 pence per litre (23% increase) in April, reflecting a 7 pence inflation-linked increase and the reversal of the temporary 5 pence fuel duty cut. The chancellor is expected to intervene, but at a high cost: extending the fuel duty freeze for another year is estimated to cost nearly £6 billion, according to various sources.

The annual energy bill cap will be increased from £2,500 to £3,280. The government’s Energy Price Guarantee (EPG), which capped average annual costs at £2,500, will be phased out, and Ofgem’s Energy Price Cap (EPC) consumer bill protection will revert to its previous state.

But falling energy prices and a milder winter are thought to have saved the government about £7 billion. This could mean that the Chancellor keeps the energy price cap in place and puts off for another year the end of the fuel duty cut.

Windfall taxes on energy companies may also be altered. Following the report by the Office for Budget Responsibility that they had not generated the expected tax revenues; the Chancellor may tighten these rules.

Corporation Tax

The increase in corporation tax rates, which will happen on April 1, 2023, may make the UK less attractive to businesses from other countries. The main rate of corporation tax for the most profitable companies will be raised to 25% from 19% previously. As a result, the government may need to consider other incentives to keep foreign investors interested in the United Kingdom.

The Chancellor of the Exchequer might put out a corporate tax road map to calm businesses’ worries about the tax increase and make it easier for them to plan. This road map would show how the UK’s corporate tax policy is going to change in the future, including any possible changes to rates and allowances.

Investments in Business

To offset the effects of higher taxes, the Chancellor may announce a variety of business investments, such as funding for research and development, training programmes, and infrastructure projects. The Chancellor could set up “investment zones” in areas that aren’t doing well to give businesses tax breaks.

Hunt has also proposed establishing “freeports” in the United Kingdom. These would be special economic zones with tax and customs breaks to aid the economy’s growth.

Company Tax Reliefs

The status of the changes to the super-deduction and R&D relief is unknown. These tax breaks were put in place to encourage businesses to invest in plant and machinery, as well as research and development. However, no replacement for the super-deduction has been announced, and no transitional regime for the R&D relief changes has been revealed.

Personal Income Taxes

Despite ongoing political pressure to change the tax system for people who do not live in the UK, we do not believe any changes for non-doms will be announced in this Spring budget.

Since one of the government’s main goals is to pay down the national debt, big news about tax breaks for individuals is unlikely. Instead, the tax system could be changed to fix what people see as unfairness or unintended results.

For example, some have advocated for UK tourists to be able to shop without paying VAT. However, we do not believe the Treasury will take this into account in this year’s budget because the national debt and the cost-of-living crisis are two of the most pressing issues.

Employment

Despite near-record employment levels in the UK, 6.6 million working-aged people remain unemployed. Chancellor Jeremy Hunt has stated that working conditions must be improved for work to be worthwhile. As a solution, he could consult on reduced National Insurance contributions for returning workers as well as funding for retraining programmes.

Even with these incentives, the government may employ other methods to motivate people to work. For example, by 2035, the state retirement age could be raised to 68, requiring people to wait longer for personal pensions.

Pensions

The lifetime allowance (LTA) for pensions could be raised, which would be a big change when it comes to retirement and pensions. This means you have more time to save for retirement before you must start paying taxes.

The lifetime allowance for 2022–2023 is set at £1.073 million and will remain unchanged until 2026.

The idea is that by increasing the LTA, it will encourage people who have already retired to return to work as they will not have to pay extra tax if they continue to contribute to their pension pot.

Childcare

The Treasury may consider extending free childcare to children aged one and two. The Treasury has investigated options proposed by the Department of Education, which included a free 30-hour-a-week entitlement for working parents with children aged nine months to three years.

Alternatives include giving two-year-olds fewer free hours or giving disadvantaged one-year-olds ten free hours.

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In conclusion, the upcoming 2023 UK Spring Budget will likely address a range of economic challenges, including the cost-of-living crisis, public sector pay, and sluggish labour market conditions.

The Chancellor may implement a range of measures, such as a corporate tax roadmap, funding for research and development, investment zones, and the establishment of freeports to promote economic growth. Additionally, the government may raise the state retirement age to 68, increase the lifetime allowance for pensions, and extend free childcare to children aged one and two.

While the Chancellor’s budget may not provide significant tax giveaways due to the need to reduce national debt, the government is likely to address perceived unfairness and unintended consequences in the tax system.

Stay tuned for the 15th of March where we will be posting the outcome from this year’s UK Spring budget. Why not sign up to our newsletter and we’ll email you on the day of budget with our final summary of the Chancellors announcements.

It’s still not to late to get your tax planning in order before April 5th, check out our free tax planning guide for more information.