This year’s budget comes at a sensitive moment for UK plc. Companies are navigating higher costs, weaker demand and skills shortages. Yet any government support is likely to be constrained by the weakness of its finances, with a significant debt hangover from the pandemic.
Business tax changes seem unlikely
As such, while Jeremy Hunt has said he wants to cut business taxes as soon as there is room in the public finances1, any changes in this budget seem unlikely. When those changes come, they are likely to focus on employers' social security contributions and business rates, rather than corporation tax. However, it is possible that the Chancellor will set out a direction of travel, which would create welcome clarity for businesses.
The Government recognises the importance of encouraging growth in the economy after a period when the UK has lagged its peers. Given its financial constraints, any action to unlock business investment or tackle labour and skills shortages is likely to be limited in scope, but the Government is likely to want to show it has a plan to revitalise the UK economy.
CBI calls for a ‘super-deduction’ successor
The Confederation of British Industry (CBI) has called for a successor to the ‘super-deduction’ regime for capital spending. It says: “Introducing full expensing for capital investment will simplify the regime, ensure boardrooms take allowances into account in their investment decisions, and improve cashflow at a time of rising costs. If full expensing is not achievable straight away, set out a three-year roadmap to reach full expensing with the introduction of a 50% investment allowance for capital spending from April 2023.”2
Encouraging workers to stay in the labour market
The CBI has also called for measures to help more individuals to remain in the labour market. That could include action on childcare, expanding the health support that firms can offer employees, or a shift in the pension rules to encourage the over-50s back to the workplace. The lifetime allowance, for example, has created some issues with doctors and public service workers retiring early.
A revamp for windfall taxes?
Windfall taxes are another area for investors to watch. For the time being, they have raised less than expected3. Energy companies continue to generate significant profits while UK consumers face high bills. The optics are poor and it is possible that the Chancellor will seek to revamp the existing system to raise more.
Green energy and energy resilience
Finally, it is possible that there will be further action on green energy and energy resilience. This is another target area for the CBI, who want action from the Government to help firms become more energy efficient as they prepare for next winter. Hunt may see the political capital in providing additional support for green initiatives.
1UK's Hunt aims to prioritise business tax cuts: The Times, Reuters, 27 January 2023
2Spring Budget 2023: what we’re asking for and why, CBI.org, 9 February 2023
3What windfall? North Sea levy generated £600m less than expected in December, OGV Energy, 25 January 2023
No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this article. It is based on our opinions which may change.