Rarely can a Chancellor of the Exchequer speak for so long and, in the end, say so little.
For a Budget speech that lasted for around an hour, the meaningful measures it contains to help small and medium-sized entities were very few and far between. Given that the Budget is the tax adviser's equivalent of Christmas, this year feels like someone has left a nicely wrapped piece of coal under the proverbial tree.
Mr Hunt focussed on his 4 "Es” – Enterprise, Employment, Education and Everywhere. However, much of the speech focused on everything the government has achieved (with the usual ceremonial opposition bashing) rather than on delivering meaningful measures in these areas. Taking each of these in turn.
Enterprise
The two tax measures of any substance that were announced feel like little more than smoke and mirrors.
The first is the ability of companies to expense 100% of their capital expenditure on plant and machinery each year. It sounds great, except the range of assets it applies to is limited to those that currently attract the higher rate of writing down allowances and the vast majority of businesses that presently get this relief through the annual investment allowance.
For other plant and machinery, which currently attracts a lower rate of capital allowances, the deduction is limited to 50%. It still seems attractive, except that, again, the AIA gives them a 100% deduction for most businesses. It is telling the press release example focuses on a business spending £10 million on qualifying expenditure – I suspect the proportion of businesses at that sort of level is tiny.
This so-called tax cut is also against the backdrop of a rise in corporation tax for any company earning over £50k in profits – Mr Hunt's statement that only 10% of businesses will pay the top 25% rate ignores those companies with profits between £50k and £250k which will also see a tax rise come April.
The second measure was an "increase" in the R&D credit for small and medium-sized companies whose expenditure on R&D is at least 40% of their total spending. These companies will get an enhanced deduction of 127% - a decrease from the 130% currently available, although admittedly less of a decrease than for other SMEs. When there are already concerns about inflated claims, which is one of the reasons for the upcoming reduction in the credit, I'm not sure encouraging the unscrupulous to increase their claims to exceed the 40% mark is a smart move.
At a more niche level, there are some welcome enhancements to the tax credit schemes for the creative industries, which are welcome.
Employment
Recognising a large number of vacancies in the workforce, new measures to encourage people back to work were announced; one laudable measure aimed at disabled people is to take away the risk of losing benefits as a result of taking on paid employment. Other measures are aimed at getting the over-50s back into the workforce – again, a laudable aim.
One such measure is the increase in the annual pension savings allowance from £40k to £60k and removing the lifetime allowance cap for tax-free pension savings. However, the cynic in me thinks it seems a bit of a stretch to say that a measure aimed largely at highly paid NHS consultants can really be described as encouraging participation of those over the 50s in the workforce.
Education
The speech's education part focussed predominantly on childcare system reforms. Additional funding to encourage new joiners to the industry and increases in funding to nurseries providing free childcare have to be welcomed, as are measures that assist those on universal credit returning to work or increasing their hours.
The landmark (and much-trailed) measure is the extension of the availability of free childcare to those working families with children between 9 months and two years old. However, the rejoicing may need to be put on hold for some due to the phased introduction, which starts with 15 hours free for two-year-olds from April 2024 and the total 30 hours only being available to all by September 2025.
Everywhere
“I'm not sure how long it took to come up with this “E” as opposed to Levelling Up which is what this was really about. Perhaps the primary measure was the creation of 12 new investment zones in areas such as the West Midlands, Greater Manchester and Liverpool. These “bold, innovative partnerships” will deliver many benefits, including tax breaks. However, it remains to be seen whether this drives the levelling agenda or merely encourages businesses to move away from the less favoured areas into these new zones.
The additional £200 million for pothole repairs was another exciting announcement. However, based on my journey to work as a sample, that funding will work out as something well below £1 per hole.
Other measures
Under the cost-of-living agenda, extending the energy price guarantee for another three months is welcome news, as is the alignment of the prices paid by those on pre-payment meters with those who pay by direct debit. Drivers will also welcome the retention of the 5p reduction in fuel duty. However, I suspect many (including, it has to be said, me) had forgotten that this might be coming to an end – or indeed noticed any difference in fuel prices when it was introduced.
I did expect a steady as she goes Budget after the measures introduced in November. I did not expect the speech to be quite as uninspiring as it was. The emphasis was on prosperity with a purpose, but it isn't easy to find many measures that will go far to achieve that. I also still need help reconciling the drive for growth with a very large hike in corporation tax which must have the effect of choking off investment, regardless of the damp squib of the new capital expenditure rules.
In short, listening to the Budget this time feels like an hour of my life I will never get back!
Shropshire Chamber of Commerce has welcomed moves in the Budget designed to tackle the skills shortage which it says is ‘blighting the economy’.
But the Chamber believes that concerns remain about whether enough has been done on energy bills to help the many smaller businesses across the county who are ‘fighting to survive’.
Ruth Ross, Shropshire Chamber’s deputy chief executive, said: “The Chancellor has clearly felt the need to act to address the unfilled jobs blighting our economy, which was so badly needed.
“Help on childcare costs, and extra incentives designed to entice more over 50s back into the workplace are also to be welcomed.
“And for companies which were concerned at the rise in corporation tax, it was also reassuring to hear that some of this can be offset against research and development costs.”
She added: “The jury is out, though, on whether enough has been done to ease the pressure which Shropshire businesses are facing with their energy bills.
“Our quarterly survey results show that many will struggle to pay their bills in April, and say they cannot invest for the future when they are simply fighting a cashflow battle to survive.
“There appears to be little in this Budget statement that will provide much comfort to these businesses – apart from the predicted sharp fall in inflation later this year.”
The British Chambers of Commerce has repeatedly called for reforms to business rates, but Ruth said the Government had failed to deliver.
“We agree with the BCC when it says that the Government must shift the dial further on investment, both within the UK and from overseas, if innovative growth industries are to remain competitive on a global stage.”
Brian Evans, managing partner at Lanyon Bowdler Solicitors, said: “The main provisions have been leaked out over the last few days, so there’s not really anything unexpected here.
“Funded childcare will be a great help to working parents and may well free up more capacity in the labour market, but that depends on places being available so the impact might not be as big as it could be, especially in rural areas.
“The forecasts that say recession will be avoided are consistent with what I and people I talk to are seeing on the ground - that there is more going on in the housing market and in terms of commercial activity than the doom-mongers were predicting in October, but the economy is still predicted to contract this year.
“Although I can see sense in being prudent, it is disappointing that the Chancellor didn’t use the additional fiscal headroom he now has to reverse or reduce the corporation tax rise, which would have helped companies facing cashflow pressures.”
Experts at Q Financial Services say the Budget will maintain the economic stability restored by the Chancellor in the wake of Liz Truss’s short-lived regime.
But Q commercial finance director Steve Parry said the Chancellor could not afford to be complacent about the long-term effects of inflation, high energy prices and raised interest rates.
“There were few major surprises in what the Chancellor had to announce today, with the extension to the domestic energy support scheme trailed well in advance,” said Steve.
“The Government had already set out its intention to focus on stability above all else, so Mr Hunt was left with little room in which to manoeuvre.
“The increase in pensions allowances and annual contributions is certainly welcome, and will avoid the tax trap which is forcing some to retire early rather than face big tax demands once they have left work.
“But we are disappointed he chose to press ahead with the increase in corporation tax to 25 per cent – something which we believe will put the brakes on investment and slow down what little growth there is in the economy. It really disincentivises success and that can never be a good thing.
“In the long-term, inflation must be brought back under control and to levels of two per cent or lower so that businesses and households can budget with certainty. Halving the current rate is certainly welcome as an ambition, but it still means a significant increase in the cost of living and doing business which people can ill-afford.
“And it is also high time the Government acted to free up new land for housing, so that we can offer a realistic chance for younger generations to get on the housing ladder. Serious and long-term reform of planning legislation is long overdue.
“As ever, the devil will lie in the detail and we will be studying the Chancellor’s statement in great detail over the coming days to ensure we offer the most comprehensive advice possible to both our private and commercial clients.”
Mark Evans from R&D Tax Claims is calling on the Government to ensure decisions made about merging R&D schemes don’t disadvantage the county’s smaller businesses.
“Given the different rates historically claimable under the SME and RDEC schemes, it’s a worry that smaller businesses may be at a disadvantage if the merged scheme favours larger businesses. SMEs in Shropshire – and in the wider UK – make an amazing contribution to innovation and development which shouldn’t be overlooked or discouraged.”
The Budget comes after previously announced changes to the schemes, which will see all claims being submitted digitally with full details of R&D projects and costs, and the inclusion of the details of any R&D consultant who’s advised on the claim, from 1 August 2023.
Mark explained the important changes for Shropshire businesses to note included: companies who have not claimed R&D tax relief in the past three years will need to pre-notify HMRC of their intention to make a claim for accounting periods starting from April 1st 2023. This pre-notification will need to be submitted digitally to HMRC within six months of the year end.
And a new credit rate of 14.5% will be introduced for loss-making companies whose R&D expenditure makes up at least 40% of their total expenditure (instead of the 10% rate for other loss-making companies).
Data licences and cloud computing services now qualify for tax relief, as will all mathematics including ‘pure maths’, he said.
Employment law expert Alasdair Hobbs, of Human Results in Telford, said: “The cost of early years childcare is often a barrier to women returning to the workplace, so this is a positive step for growth and will go some way to plugging the million-plus vacancy crisis.
“However, the childcare sector is struggling with staffing issues of its own, and whilst this has to be welcome news, it must be tempered with proper funding of the many small private nurseries that work hard to provide a safe and stimulating environment for our children in what is a heavily-regulated industry.”
Andrew Huxley, MD of Telford-based construction firm Besblock, said: “Talks of a recession and a stuttering economy have definitely had an impact on construction output, but there remains some positives in the sector and reasons to be optimistic for the rest of 2023.
“UK construction activity beat investor expectations in February to register its highest growth rate in nine months as an improving global outlook boosted commercial projects.
“Here at Besblock, our own orders are still going up as we continue to invest in new products, new people and new technology to drive the business forward.
“I am pleased to see the Government is recognising the urgency of the UK’s clean energy revolution. We have invested millions into the business to reduce our environmental impact and have a dedicated sustainable design team that is helping to prove that traditional construction can still be green.
“It is also good to see the Government taking action on the labour market and encouraging people to get back into work after the pandemic.”
Debbie Price, chief executive of care provider Coverage Care Services, said the Chancellor’s plans to encourage people back to work could provide a huge boost to the care sector and other industries facing ongoing recruitment issues since the pandemic but that they needed to be actioned immediately.
She said: “Across the care sector and health profession nationally it has become increasingly harder to attract new recruits and retain existing staff and it’s a serious issue for many care homes up and down the UK.
“We very much welcome plans by the Chancellor to encourage the long-term unemployed and early retired people to go back to the workplace, as well as greater financial support for parents of young children, but our worry is that these measures alone won’t help the immediate staffing struggles which care homes are currently facing.
“As always, these kinds of plans take a long time to filter through and in the meantime the care sector is still being expected to support the ongoing pressures being felt by the NHS by helping to free up thousands of hospital beds through community discharge.
“What the care sector has needed for years is a proper, bold, national plan and we still don't seem to be any closer to that."
Neil Lloyd, managing director of Shropshire law firm FBC Manby Bowdler and chairman of the Training & Manufacturing Group (TMG), said plans for a new investment zone in the West Midlands Combined Authority area could kickstart a fresh era of investment in innovation and new technology.
But he warned that changes to research and development tax reliefs for SMEs – designed to limit abuse of the system – could cut off a vital lifeline for start-ups and developing firms.
“The creation of an investment zone with tax incentives, relaxed planning rules and links with university clusters, could play a key role in driving growth across the West Midlands and the wider area.
“Our region is the heartland of manufacturing and innovation in the UK and this can help attract still more investment in developing the technologies of the future and consolidate its global reputation.”
Neil said changes to the R&D tax regime and corporation tax had been flagged up in the Chancellor’s autumn statement but would still present challenges to smaller businesses.
“Full capital expensing for the next three years is welcome and will help offset the corporation tax rise for bigger businesses – but it’s not a long term plan and businesses need stability to plan growth."
Phil Alston, Commercial Director of Telford-based engineering firm iconsys, said: “The new full capital expense deduction is a welcome addition to soften the blow of losing the capital allowance super deduction that expires at the end of this month.
"Whilst not as generous as the existing scheme, this will allow UK manufacturing businesses to continue to invest in automating their processes and help with the push towards net zero.”
“For manufacturing businesses looking to expand in the next few years, these new ‘investment zones’ could allow for quicker business development with cleaner, more streamlined process lines and full vertical data integration thanks to the ongoing automation and robotics revolution.”
Spotlight on haulage careers
VIP event celebrates transformation
Like father - like son!
